Author: Xirui Li, NTU
The private sector and foreign investors have become increasingly skeptical about doing business in China since COVID-19. The risks of closures, travel restrictions, disruptions to normal operations and supply chains, and liquidity shortages posed by China’s zero-COVID policy have significantly damaged their confidence.
China has engaged in a multiple regulatory crackdown on a wide range of industries, from platform economics to online finance to real estate. The crackdown indicates that Beijing is prioritizing private sector loyalty and financial stability over growth and access to capital. Beijing’s advocacy of “common prosperity” and opposition to “unlimited economic growth” has only increased corporate concerns about China’s aggressive redistributive policies.
The increasing antagonism and disconnection between China and the West and China’s decision to develop “self-sufficiency in technology and science” have created enormous uncertainties for business operations and corporate confidence. Many have questioned whether China is pursuing a state-centered and inward-looking economic development strategy and whether the era of reform and opening up has come to an end.
With the end of China’s zero-COVID policy at the end of 2022 and the recent announcement of a new lineup of top government leaders, 2023 is a crucial year for China to rebuild business confidence. China will have to show the world that in the post-pandemic era it still places a premium on opening up and pro-business policies, particularly for the private sector.
Chinese leaders have reiterated their determination to open up the country. The 2022 report of the 20th National Party Congress of the Chinese Communist Party emphasizes that China will “remain determined to reform and open up”, “promote high-level opening up”, and “promote the healthy development of the non-public sector ease”. Speaking at the first plenary session of the new State Council term, China’s new Premier Li Qiang told colleagues that promoting opening up, strengthening the private sector and attracting more foreign investment are their top priorities.
Li emphasized the importance of the private sector in upgrading China’s manufacturing by visiting the facilities of Build Your Dreams, one of the country’s largest electric vehicle manufacturers and a private company, on his first trip outside Beijing after he became prime minister. During this trip he also met a number of heads of large companies. Among these heads was the CEO of Xiaomi, one of China’s largest smartphone manufacturers and a private company in China.
At the meeting, Li promised to create a business-friendly environment. In addition to sending a message to the domestic private sector, the Chinese government has used international conferences to reassure foreign investors. For example, Chinese President Xi Jinping sent an unprecedented letter of congratulations to this year’s China Development Forum, reiterating that opening up is China’s fundamental national policy.
At the Forum, both Li and Chinese Vice President Han Zheng met with CEOs of numerous multinational companies and pledged to promote high-quality opening up. Li clearly stated in his opening address at the annual meeting of the Boao Forum of Asia that China will continue to increase market access with new measures and will continue to improve the business environment for state-owned enterprises (SOEs), private Chinese companies and foreign companies.
China has taken a government-wide approach to address private sector concerns. Xi emphasizes that the operation of state-owned enterprises must follow the market. This could be interpreted as meaning that state-owned companies should not enjoy privileges and have to compete in the market. The central government has taken steps to relax regulatory measures against companies. For example, it issued publisher licenses to 44 foreign games for domestic release and approved more than a hundred new video game licenses for domestic companies, and Didi chuxing, a domestic ride-hailing company, was allowed to register new users.
Central government ministries and local governments have taken steps to promote domestic private sector development and expand opening. In cooperation with provincial governments, the Ministry of Commerce launched “The Year of Investment in China” to attract more foreign investment through exhibitions and forums.
The provincial governments of Hebei, Shaanxi, Hainan and Hunan have implemented policies to support private economic development. Their measures include reducing government intervention in the operation of the private sector, providing financial and credit support to private companies through multiple channels, and allocating cash to outstanding private companies. Provincial leaders have also traveled abroad to attract foreign investment and widen the opening of their respective provinces. For example, Guangxi Party Secretary Liu Ning traveled to Vietnam, Singapore and Malaysia in March and April 2023 and signed contracts worth a total of 89.1 billion RMB (US$12.9 billion).
The Chinese government has sent a clear signal of its full commitment to opening up and improving the business environment, especially for the private sector. In the post-pandemic era, it is almost impossible for China to overturn its openness and support for the private sector.
It would be prohibitively expensive for Chinese leaders to withdraw support from the private sector after making statements at high-profile international events. The path dependency of China’s outward-looking economy also means that any action against private sector opening or development would have huge negative effects not only in the economy, but also in politics and society.
Xirui Li is a PhD candidate at S Rajaratnam School of International Studies, Nanyang Technological University, and a Research Fellow at Intellisia Institute, Guangzhou.