Opinion: How Can Policymakers Boost Confidence in Private Enterprises? by Zhou Dongxu

27 Jul 2023

Good news has arrived for China’s private sector, which has been stuck in an economic predicament.

China’s Communist Party and government Wednesday issued a joint pledge to improve conditions for private businesses through a new set of measures, adding another key policy document laying the groundwork to support the private economy.

The pledge came after a lower-than-expected GDP growth in the second quarter and record-high youth unemployment. Private businesses typically absorb a large portion of the young workforce.

Private businesses have suffered various constraints and weakening confidence due to a combination of factors, including pressure from China’s economic transformation, the private sector’s structural adjustments, and challenges at home and abroad.

However, amid the already weakening economic backdrop, some local governments have exercised arbitrary governance, implementing unconventional measures that undoubtedly intensified corporate anxiety and eroded the foundation of confidence built through reform and opening up.

To boost the confidence of private enterprises, the most urgent task is to vigorously rectify unreasonable governance practices in various regions and allow businesses to grow freely in a stable and predictable business environment. The Wednesday document explicitly called for the perpetual removal of market access barriers, strengthening laws and regulations protecting market competition, and improving the framework of fair competition and the mechanisms for implementing policy. It also emphasizes treating all types of enterprises equally and fairly. These are precisely the practical measures that private enterprises eagerly desire policymakers to implement.

The document also prohibited exercising local protectionism and using excessive administrative or law enforcement measures to disrupt business. It emphasized the need to improve the fairness and simplicity of supervision, eliminating selective law enforcement and burdensome regulatory requirements that deeply concern and frustrate businesses, especially private enterprises. This neglect of procedural justice and excessive enforcement reflects the expansion of power and weakness in the rule of law, leaving businesses feeling worried, afraid, and helpless.

Despite the several high-level policy documents issued since 2005 to protect private enterprises and boost their confidence, overcoming the inertia of arbitrary governance at the local level is not easy. The challenges from various aspects make it difficult to fully dispel the anxieties of these enterprises with just a single document.

To prevent arbitrary governance, there must be a clear boundary between the market and the government. The relationship between them is complex, but it doesn’t allow the government to extend its reach without limits or intervene in the market recklessly. The boundary should be governed by the rule of law, not the personal will of those in power.

It is also important to be aware of growing formalism and excessive punishment under the bureaucratic system. There are recent cases showing that many regions and departments resort to falsification or harsh penalties to show accountability to their superiors, burdening ordinary and vulnerable market entities in the process.

Restoring order and boosting confidence in the private sector is not an immediate process. Two important aspects to focus on are establishing regular communications between the government and private companies to enhance decision-making and expand channels to lodge complaints and safeguard operations so that businesses can assert their rights when necessary.

Recently, Premier Li Qiang and various government officials have engaged in discussions with entrepreneurs to establish a way to stay in regular communication. This is an effective approach to address harsh law enforcement resulting from decisions lacking scientific basis and influenced by personal interests, which may be exploited by corrupt individuals for personal gains.

Public participation is a key aspect of the decision-making process for a government based on the rule of law. Illogical or unreasonable decisions can be avoided if market entities have the opportunity to voice their reasonable demands and have them respected, thereby preventing serious credibility crises for local governments.

Regular communication mechanisms aim to impose pre-emptive constraints while strengthening channels to lodge complaints and safeguard businesses provide recourse for private enterprises. The lack of checks on power is why private businesses hesitate to defend their rights and fear retaliation. A just safeguard mechanism is essential in a society based on the rule of law, ensuring accessible channels for airing grievances against officials, providing private enterprises with the confidence to safeguard their rights, and effectively constraining local governments.

It is also crucial to create a positive social atmosphere for the continuous growth of the private economy. There have been numerous examples of private enterprises that faced defamation and various accusations but dared to speak up or defend themselves. The document strongly emphasized refuting and clarifying erroneous remarks and actions that undermine the private economy. Resolute actions, not just slogans, are needed to truly protect private enterprises and address their concerns.

The importance of private enterprises in China cannot be underestimated. The recent pledges made by the central government show its commitment to protecting their rights, and we anticipate further concrete actions to boost their confidence.