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NY Times, Oct. 4, 2018
Private Businesses Built Modern China. Now the Government Is Pushing Back.
By Li Yuan
HONG KONG — The comments were couched in careful language, but the
warning about China’s direction was clear.
China grew to prosperity in part by embracing market forces, said Wu
Jinglian, the 88-year-old dean of pro-market Chinese economists, at a
forum last month. Then he turned to the top politician in the room, Liu
He, China’s economic czar, and said “unharmonious voices” were now
condemning private enterprise.
“The phenomenon,” Mr. Wu said, “is worth noting.”
Mr. Wu gave rare official voice to a growing worry among Chinese
entrepreneurs, economists and even some government officials: China may
be stepping back from the free-market, pro-business policies that
transformed it into the world’s No. 2 economy. For 40 years, China has
swung between authoritarian Communist control and a freewheeling
capitalism where almost anything could happen — and some see the
pendulum swinging back toward the government.
State-controlled companies increasingly account for growth in industrial
production and profits, areas where private businesses once led. China
has stepped up regulation of online commerce, real estate and video
games. Companies could face higher taxes and employee benefit costs.
Some intellectuals are calling for private enterprises to be abolished
Dissenters in China these days must walk a careful line. But a sense of
urgency — fueled in part by China’s slowing growth and rising pressures
from President Trump’s trade war — has driven a growing number of
officials and economists to speak out on the government’s changing
stance on private business.
Private enterprises are plagued by concerns and “dissatisfaction,” said
Ma Jiantang, the top party official at the Development Research Center,
a high-level government think tank, at the same forum, according to a
“If a trend forms and no one dares to criticize it,” wrote Hu Deping, a
retired minister, “the consequences will be terrible.”
The debate has gone all the way to the top. On Thursday, President Xi
Jinping, the country’s leader, sought to reassure private entrepreneurs
that Beijing would still support them. But he also offered a
full-throated defense of the country’s big state-controlled companies,
which many economists believe crowd out private businesses.
“Such statements as ‘there should be no state-owned enterprises’ and ‘we
should have smaller-scale state-owned enterprises’ are wrong and
slanted,” Mr. Xi said during a visit to a facility owned by China
National Petroleum Corporation, a major state-controlled oil company.
China’s leadership turned to entrepreneurs in the late 1970s, after the
government had led the economy to the brink of collapse. Officials gave
them special economic zones where they could open factories with fewer
government rules and attract foreign investors. The experiment was an
unparalleled success. When extended to the rest of the country, it
created a growth machine that helped make China second only to the
United States in terms of economic heft.
Today, the private sector contributes nearly two-thirds of the country’s
growth and nine-tenths of new jobs, according to the All-China
Federation of Industry and Commerce, an official business group. So
pressures on private businesses could create serious ripples.
“The private sector is experiencing great difficulties right now,” wrote
Mr. Hu, the retired minister, who as the son of a former top Communist
Party leader is often a voice for reform in China, in an essay posted
online last Thursday. “We should try our best not to replicate the
nationalization of private enterprise in the 1950s and the state
The Chinese president, who has sought greater party control over the
military, the media and civil society, is now focusing on business. The
government is considering taking direct stakes in the country’s big
internet companies. Regulators have stepped up existing requirements
that businesses, even foreign ones, give Communist Party committees a
greater role in management.
Leftist scholars, bloggers and government officials are providing
theoretical and practical support. In January, Zhou Xincheng, a
professor of Marxism at Renmin University in Beijing, declared that
private ownership should be eliminated.
A hospital in Shanghai. China must find ways to pay for increasing
ambitious social programs like universal health care. It is also trying
to curb problems caused by business run amok, like pollution and years
of companies dodging taxes.CreditGilles Sabrié for The New York Times
Last month, Wu Xiaoping, then an unknown blogger, wrote that the private
sector should be ended now that it had accomplished its historic mission
of achieving growth. Mr. Wu’s blog went viral.
Also last month, Qiu Xiaoping, a vice minister of human resources and
social security, urged “democratic management” of private enterprises,
saying that they should be jointly run by business owners and their
Some of the government’s efforts stem from necessity. Beijing must find
ways to pay for increasing ambitious social programs like universal
health care. It is also trying to curb problems caused by business run
amok, like pollution and poor treatment of workers, as well as years of
companies dodging taxes.
But entrepreneurs say the pace of change in Chinese taxes — already
among the world’s highest — gives them little time to prepare. For
example, next year China will step up efforts to collect social-benefit
payments and shift the way they are calculated, resulting in higher
costs. Stricter social security tax collections could erode China’s
corporate profits by 2.5 percent, according to Lu Ting, an economist at
Nomura Securities in Hong Kong.
That could particularly hurt smaller companies, which tend to be
privately owned and often have thin profit margins. Chinese officials
have promised to cut overall taxes, but the details have been scant.
Beijing’s efforts to wean the economy from its dependence on borrowing
have made it harder and more expensive for many private businesses to
get money. At the same time, the state-owned enterprises have little
problem getting new loans. Even Li Keqiang, China’s premier, recently
acknowledged what he called the “hidden line” between public and private
access to bank loans.
Some struggling entrepreneurs are doing what was once considered
unthinkable: selling out to the state. So far this year, 46 private
companies have agreed to sell shares to state-controlled firms, with
more than half selling controlling stakes, according to the Shanghai
Securities News, an official government newspaper. While the number is
small considering the vast Chinese economy, it reverses a two-decade
trend of state companies selling shares to private entrepreneurs.
Tech workers in Beijing in May. China has taken steps to put greater
control over its technology sector, which flourished largely free from
government influence.CreditGilles Sabrié for The New York Times
One was the Changchun Sinoenergy Corporation, an oil and gas company.
Its controlling shareholders agreed to sell their stakes to a company
run by the government of Hunan Province after a loan was called. The
government has pledged to inject nearly $150 million into the company.
China has also taken steps to gain greater control over its technology
sector, which flourished largely free from government influence.
Approvals of new video game titles have been frozen since a shift in
regulation that has given the Communist Party’s propaganda department a
direct role, an unusual degree of power over what had been a government
process. Tencent, China’s video game giant and one of the world’s
largest technology companies, has lost nearly one-third of its market
value. Tencent declined to comment.
The authorities have also tightened rules governing online commerce. A
new law requires those who run online stores to register with the
government and pay taxes. That could hit Alibaba Group, also one of the
world’s largest internet companies, because it runs an online bazaar,
called Taobao, where merchants big and small have opened thousands of
digital stores. In a statement, Alibaba said it hoped the introduction
of the new law would bring positive development to the industry.
Against this backdrop, state-owned companies are having a good year. In
the industrial sector, state-owned companies saw their profits grow
three times as fast as those in the private sector in the first seven
months of the year, according to government data. That is in part
because government efforts to cut back on overcapacity and pollution
have fallen largely on private factories.
Private entrepreneurs are loath to speak out for fear of attracting
official condemnation. But signs of distress aren’t hard to find.
Last month, Chen Shouhong, the founder of an investment research firm,
asked a group of executive M.B.A. students — many of whom already owned
publicly listed companies — to choose between panic and anxiety to
describe how they feel about the economy. An overwhelming majority chose
panic, according to a transcript. Mr. Chen declined to be interviewed.
Optimists point to expressions of concern from China’s top leadership as
an indicator that the government will give businesses more room. Others
believe the tougher environment will stay. Xiao Han, an associate law
professor in Beijing, cited one of Aesop's fables, of a man trying and
failing to stop a donkey from going over a cliff.
“Before long,” Mr. Xiao said, “we’ll probably find a body of a China
donkey under the cliff.”
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