China's economic planning agency announced an initiative this week, following up on last Wednesday's 31-point Party plan, to incentivize the private sector and kickstart the economy in the second half of the year, state media reported.
At a press briefing Monday, the National Development and Reform Commission claimed to have a list of more than 2,900 projects that would require a total investment of RMB 3.2 trillion (U.S.$447 billion) – the commission hopes the private sector is interested.
Those still wishing for a government stimulus package of the kind China has embarked upon in the past will be disappointed.
Among the raft of incentivizing tidbits on offer from the NDCR was the promise that private sector investors could keep 100% of their returns, in a move the commission said would take some of the pressure off cash-strapped local governments.
Last week Beijing pledged to improve conditions for businesses, which have suffered from years of strict pandemic controls and regulatory crackdowns on key sectors like technology and property.
China consultancy Trivium commented in its newsletter, “We doubt there are that many profitable projects for private companies to invest in.
“With confidence in the economic outlook weak, and investors bruised from a three-year crackdown on industries dominated by the private sector, it will take much more than this to awaken those animal spirits.”
According to Bloomberg, private investment in China contracted this year – now comprising just 53% of overall fixed assets investment, down from a peak of 65% in May 2015. The NDRC said its aim is to maintain private investment at a "reasonable level."
It is the first time in decades – apart from 2020, during the COVID-19 pandemic – that private investment has contracted in China.
Meanwhile, the 31-point joint statement by the Communist Party and the government last week, may have included pledges to treat private companies the same as state-owned enterprises and to consult more with entrepreneurs on policy initiatives, but they were widely received with skepticism by entrepreneurs.
Writing in the New York Times, Li Yuan said, "After three years in which the government cracked down on private companies, stamped out innovation and exalted state-owned businesses, the document represents a near-concession by the Communist Party that its campaign failed spectacularly."
“The country’s economic problems are rooted in politics,” the columnist wrote. “Restoring confidence would require systemic changes that offer real protection of the entrepreneur class and private ownership. If the party adheres to the political agenda of the country’s paramount leader, Xi Jinping, who has dismantled many of the policies that unleashed China’s economy, its promises on paper will remain just words.”
‘Open for business’
China’s leadership has been repeat-button reassuring businesses that China is committed to opening up, while simultaneously sending the opposite message with its actions.
"China will unswervingly stick to opening up regardless of changes to the global environment," Premier Li Qiang said in March.
“Beijing has devoted more attention to supporting private businesses this year than at any time we can remember since the founding of the People’s Republic,” noted Trivium last week.
But Bloomberg Opinion commented, "There's no escaping that China under Xi decisively abandoned the "reform and opening up" credo of the late Deng Xiaoping.
“The party has given itself an ever-bigger role in the economy, and the space for private discourse and decision-making has shrunk. That’s become crystal clear to the business world, making a return to the good old days hardly realistic – no matter what Xi says now.”
Foreign investors are particularly rattled by a revised anti-espionage law, which took effect on July 1, and redefines spying as the collection of information, which any business operating in China needs to do if it wants to understand the local market.
It expands the definition of espionage to constitute accessing "documents, data, materials or items related to national security and interests," leading Cedric Alviani of Reporters Without Borders to comment at the time that it covered, "basically any type of information."
Meanwhile, with private and foreign investment contracting, more than one in five young Chinese – workers from 16 to 24 – unemployed and local consumers holding back on spending, apparently sticking with the belt-tightening of the COVID-19 lockdown period, China’s economy appears to be lacking confidence and running out of steam.
Even the property market can't find its feet again. Home sales were down 28% in June year on year, according to the Wall Street Journal.
Enter foreign investment
Foreign investment built China into the economic Goliath it is today, but now it’s starting to quest elsewhere, in a move that is clearly frustrating for Xi Jinping’s stolidly top-down leadership.
China wants a return of foreign investment, reports Reuters, but foreign firms today tend to see risk where once they saw more than a billion consumers and bounteous returns.
Financially battered local governments, which had to bear the vast costs of COVID-19 testing regimes while already suffering from a debt overhang after years of profligate spending on ambitious and sometimes unnecessary infrastructure projects, particularly covet foreign investment, but it’s increasingly difficult to sugar-coat projects sufficiently to attract to attract capital.
"Provinces and cities from Sichuan to Chaozhou have sent delegations across the globe to pitch and invite investors to rare symposiums," Reuters reported.
For foreign investors eyeing a more challenging regulatory environment and far less attractive terms than a decade ago, it’s a hard sell.
The AmCham China White Paper survey released in May this year found that 32% of the group’s member companies cite “inconsistent regulatory interpretation” and “unclear laws and enforcement” as a major risk.
For the first time, AmCham member companies said they were less willing to invest in China, with nearly 45% of respondents saying the domestic investment environment is “deteriorating.”
In June a European Chamber of Commerce in China report found that 64% of European companies say doing business in China has grown more difficult in the past year and "75% have reviewed their supply chain strategies over the past two years, with 24% reporting plans to at least partially onshore their supply chains into Mainland China and 12% having already shifted parts of them out of the country."
Edited by Mike Firn.