China establishes state body to support private sector

China will create a special body to promote the private sector of the economy under the National Development and Reform Commission (NDRC) – the agency for economic planning. This was announced on September 4 at a briefing by NCRR Deputy Chairman Cu Liang, Chinese state television channel CGTN reported. The Bureau for the Development of the Private Economy will become a structure responsible for coordinating and implementing measures to support private business from the state.

The bureau’s responsibilities will include tracking, studying and analyzing the development of private business, formulating policies that promote investment growth. It will be responsible for creating a mechanism for communication with private enterprises, for working to improve their international competitiveness. In August, the NCRR already introduced a number of measures to reduce taxes, simplify corporate governance and protect the rights of private businesses.

Earlier, Vedomosti wrote that on August 29, NCRR Chairman Zheng Shanjie acknowledged the slowdown in the Chinese economy and recorded the beginning of budgetary demand stimulus. On August 28, Chinese Finance Minister Liu Kun said that the Chinese authorities want to effectively use the mechanism of direct access to budget funds, accelerating the spending of their funds. New special bonds of the regions will be issued before the end of September, the proceeds will be spent before the end of October. These actions are being taken in the spirit of the course approved by the Politburo of the CPC Central Committee on July 24th.

On July 31, the NCRR approved measures for non-financial stimulation of domestic demand, including the removal of a number of consumer restrictions, an increase in paid holidays, benefits for buyers of electric vehicles, improvement of infrastructure and holding mass consumer events.

In July, the State Statistical Office of the People’s Republic of China reported that China’s GDP in the second quarter of 2023 grew by 6.3% in annual terms. The indicator turned out to be worse than market expectations by 1 percentage point, and by the first quarter it grew by only 0.8%. The growth of retail sales in June slowed down to 3.1% against June last year (against 12.7% in May).

The new body is a signal from the authorities that not only large business and infrastructure, but also small and medium-sized enterprises (SMEs) are receiving special attention amid hopes to restart demand, said Sergey Lukonin, head of the Chinese economics and politics sector at IMEMO RAS. It is important that in the context of a slowdown in economic growth, it is in the SME sector that up to 70% of people employed in China work and it produces up to 60% of its GDP, says Lukonin. “Now there is a problem of youth unemployment, reaching 20%, it is SMEs that can solve it. The new structure should support business investments in fixed assets, stimulate demand for labor through its development,” the expert believes.

The emergence of a new body means an emphasis on the development of SMEs, Andrey Kochetkov, a leading analyst at Otkritie investitatsii, agrees. “This is a way to increase the income of the population and expand the consumer base. One of the possible tasks of the new body may be to promote the whitewashing of the market, for example, banking services,” Kochetkov believes. The new bureau is another tool to support private business within the framework of the existing economic policy, added Andrey Karneev, Head of the HSE School of Oriental Studies. The bureau’s activities are unlikely to limit the work of foreign companies, he said. The creation of the body, according to Karneev, will improve the position of SMEs affected by the US-China trade war and the pandemic.

Innovations are taking place against the backdrop of a discussion in the PRC establishment about ways of development, recalls Lukonin. Regulators are now sending a signal that private traders will be given help, and there will be no return to the days of Mao Zedong. The Chinese authorities are keen to show a willingness to move away from the harsh rhetoric against business used in 2021, Karneev adds. “The task of the Chinese authorities is to return to the balance between the public and private sectors,” the expert concludes.