China issues 28-point plan to ease the fears of its private entrepreneurs struggling amid the economic slowdown

Zhou Xin

China has vowed to “forge a better environment to support private businesses” in its latest policy guidelines, which include new and old promises to the country’s private entrepreneurs, in an apparent effort to shore up confidence in the sector that contributes half of the tax revenue and 80 per cent of the country’s employment.

The 28-point plan, issued on Sunday by the ruling Chinese Communist Party and State Council, includes decade-old promises to provide a level playing field for the private economy as well to break up state monopolies in the railway and oil sectors.

China’s private entrepreneurs are particularity struggling amid the economic slowdown, under pressure from excessive taxes and levies, as well as the persistent discriminatory treatment from China’s state apparatus.

The entrepreneurs have little contribution to policymaking decisions, while they lack the protection from legal mechanisms, making China’s private entrepreneurs particularly vulnerable to an intrusive state machine, regulators and judges.

The lack of confidence from private business owners is a key underlying reason for China’s sluggish economic growth and pressure of capital exodus, which adds to China’s economic prospects on top of a trade war with the United States.

The situation even led President Xi Jinping to meet with the country’s private business delegates last year to assure them that they are still needed, valued and protected by the ruling Communist Party.

It is not the first time that China has made promises to the country’s private businesses, and in 2005 issued a 36-point directive about encouraging private investment, which was updated five years later.

But Xu Hongcai, deputy director of the economic policy commission at the China Association of Policy Science, a Beijing-based think tank, said the actual result of the previous directives has been limited and that private businesses have never been offered “fair competition” in China when state-owned enterprises are often helped to obtain things like credit, land and licenses.

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The latest policy directive, though, is more “targeted” to remove discrimination against private businesses not only in actual policies such as bank lending, government procurement and market entrance but also in “mindset about private businesses”, Xu said.

The new directive covers not only long-standing issues such as market entrance and credit support, but also specific concerns from Chinese private business owners about law enforcement and the protection of their basic rights.

According to the directive, Chinese law enforcement agencies must protect “legitimate personal and property rights” when they summon private business owners as part of disciplinary investigations. In addition, China’s police and the courts must learn to “strictly distinguish corporate assets from personal property, the suspect’s assets from his or her family members’ assets”.

In addition, it requires all levels of Chinese government to honour their contracts with private businesses and to make proper compensation to businesses if losses are incurred due to government planning or policy change.

It also tell China’s local party and government leaders to “frequently” listen to opinions and complaints from private businesses “through different channels” and encourages private business owners to take positions in state-backed industry associations and groups.

These lines directly target common fears among China’s capitalists, but it remains to be seen whether China can make the necessary legal and institutional changes.

The wife of Xu Xiang, a Chinese private investor who was sentenced to five and half years in prison in 2015 and fined 11 billion yuan (US$1.6 billion) for insider trading, wrote on Wednesday on her Weibo social media account that the new directive paints an “ideal world” for Chinese private businessman but that the reality is completely different.

Ying complained that China’s court had failed to distinguish between the assets of Xu and his family members when confiscating and freezing his assets.

When Xu committed a crime, it is almost like all his family members were stripped off assets. There’s no distinction at a

Ying Ying

“When Xu committed a crime, it is almost like all his family members were stripped off assets. There’s no distinction at all,” said Xu’s wife, Ying Ying.

A private businessman, who has “assisted in investigations” by authorities, told the Post on condition of anonymity that it is difficult for the directives to be implemented on the ground.

On the other hand, however, the new directives make it clear that Beijing wants to put at end to an ideological debate over whether the Chinese Communist Party, with an orthodox Marxist ideology of ultimately terminating private ownership, will tolerate the growth of private business.

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The debate, which had long been silenced since China’s former paramount Deng Xiaoping encouraged some Chinese people to get rich first, became more prominent recently as Beijing stressed the importance of a state-owned economy and state controls in economic activities.

It peaked in September 2018 when a little known investor, Wu Xiaoping, wrote an article saying China’s private businesses have completed their “historical mission” and should be phased out, which brought back memories of the Communist Party’s purge of capitalists and the removal of their assets.

In the last point of the directive, it said that all Chinese authorities must “firmly resist and timely clarify” any talk of negating the role of the private economy.

Additional reporting by Orange Wang and Cissy Zhou

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