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Aboluowang Commentary: China’s Private Sector Feels the Squeeze from All Sides

Aboluowang published an opinion article titled, “China’s Private Businesses Feel the Squeeze from All Sides.” The translation follows:

As the trade situation between the U.S. and China deteriorates, China’s debate on the role of private and state owned enterprises in the economy has become more intense. Analysts suggest that the debate has even raised concerns about the possibility that the communist government may decide to nationalize private companies.

Under Xi Jinping’s leadership, especially after he abolished restrictions on the term limit of the president, thus allowing him to be in power for life, the party has begun to re-emphasize its leadership at all levels of society, including business.

In June this year, the party announced that it would require all publicly listed companies to set up party organizations. In the past two weeks, with the intensification of tension between Beijing and Washington, articles on the Internet have suggested that private companies should retreat to second line status, and China should move toward a large-scale centralized public-private partnership economy.

In one article, Wu Xiaoping, a senior financial specialist, wrote that the private economy has fulfilled its mission of helping the public economy and should withdraw from the historical arena.

Frank Xie, an associate professor at the University of South Carolina, said that although Wu’s article was strongly opposed, and that even the official media criticized it, the article was not immediately deleted because the government wanted to test public opinion.

Recent remarks that Qiu Xiaoping, the deputy director of the Ministry of Human Resources and Social Resources Protection made, were also slammed. Qiu Xiaoping said that private enterprises should be more democratic and called on the Party to lead workers to manage private enterprises jointly and to share profits with each other.

Last week, however, in Northeast Liaoning, Xi Jinping encouraged private companies to be confident. Xi also promised that the Party will resolutely develop, support, guide and protect the private sector. It is unclear whether his remarks meant that the government would be more involved in private companies.

Lu Suiqi, an associate professor at the School of Economics at Peking University, said, “In the context of the US-China trade war, there are concerns that China’s economy will shrink and that the leaders of the Party may sacrifice private enterprises to support state owned enterprises. Although the government has stated that the development of private enterprises is guaranteed, the guiding position that state owned enterprises enjoy should not change.”

Chinese state owned enterprises have long enjoyed a monopoly in important and lucrative areas. They are also hotbeds of corruption, but even though they have 70 percent of China’s financial resources, they only account for about 30 percent of the economic contribution. Private companies receive less money but create 80 percent of jobs and contribute to 60 percent of economic growth.

Many people in China and abroad believe that the state owned enterprises are dragging China’s economy and are an obstruction to free trade. The U.S. in particular is dissatisfied with Chinese state owned enterprises in terms of trade, but the Party may still expand the scale of state owned enterprises.

“The purpose of either nationalizing private companies or expanding the size of state owned enterprises is to increase (the party’s) control,” said Darson Chiu, a scholar at the Taiwan Economic Research Institute. From China’s perspective, “expanding the size of state owned enterprises will enhance the planned economy and make it easier to avoid risks.”

Frank Xie, however, said that if China takes this path, China and the U.S. will have conflicts because this is contrary to what Trump wants China to do. Xie said, “This will only encourage Trump to continue to the next step and then tax the balance of US$ 267 billion worth of goods.”

The major risks China faces, of course, are not just the trade wars. China’s stock market has fallen to its lowest point in four years, and industrial growth has slowed for four consecutive months.

Its economy is facing many problems, including large scale government and corporate debt, as well as tight liquidity.

Last week, Yu Liang, head of China’s real estate giant Vanke, said at a regular meeting that the main goal of the company now is “to live.”

In the auditorium of Vanke, a red banner with two characters “to live” was hanging on the wall. Yu Liang said that China has reached a turning point and no industry can be immune from a negative a economic impact.

Source: Aboluowang, October 3, 2018