Under President Xi, the focus is on policies favouring state-owned enterprisesby George Magnus / December 17, 2018 / Leave a comment
During 2018, private companies in China, the mainstay of the country’s economic resurgence in the last decades, have been hit by a slump in the stock market, the ongoing credit crunch and the trade conflict with the US. Beijing has taken measures to help them, but entrepreneurs have concerns that run much deeper—namely that the government’s industrial and economic focus on the state sector is at their expense.
The “Communist” element of the Chinese Communist Party was abandoned many years ago. After Deng Xiaoping came to power in 1978 and launched the “Reform and Opening up” programme, China shed its obsession with public ownership of the means of production, distribution and exchange. It gradually allowed some market mechanisms and private ownership and enterprise to take root in the economy, albeit under close state and Party control. In the 1990s, a huge wave of privatisation of state enterprises occurred, along with the development of a thriving private market in property.
Fast forward to 2018, and the private sector has been described using the figure “56789”: private activities account for 50 per cent of fiscal revenues, 60 per cent of GDP and investment, 70 per cent of industrial upgrades and innovation, 80 per cent of jobs, and 90 per cent of enterprises. China’s 164 or so private equity companies in the tech space—known as unicorns—are worth over $630bn and are world leaders in terms of numbers.
Even though it is widely accepted that China’s private sector has been the driving force in the country’s economic eruption, clouds have been gathering over this part of the economy since Xi Jinping came to power. Lately, private enterprise has not only been flagging but it has also been the focus of great controversy and uncertainty.
What is private in China anyway?
Official data testify to the overwhelming numerical predominance of private firms. At the end of 2017, there were 65.8m individually-owned businesses and 27.3m private enterprises, employing some 340m people. Yet the classification of private, especially as regards the latter, remains opaque. Companies that register as private can, in practice, still be state-controlled, or file as collectively-owned or co-operative companies, according to the National Bureau of Statistics of China. Some limited liability companies may have mixed private and public owners, and many have layers of holding companies behind which…