In the midst of the various economic and financial issues plaguing China today, the most fundamental problem is a lack of trust – specifically, a loss of trust in the future among private enterprises and in the Chinese Communist regime.
Private enterprises in China have lost confidence in the future and trust in the Chinese Communist Party. Beyond the alarming real estate crisis, the long-term future of the Chinese economy depends largely on regaining this trust. This future is what both the Chinese people and the Communist Party hope for in terms of economic growth and prosperity. However, regaining this trust has become increasingly challenging.
About 50 years ago, during the early days of reform and opening up, when China embarked on its remarkable development journey, then Chinese leader Deng Xiaoping described the current development phase as a step towards a more perfect socialist future for the country. Truth be told, that period was a success. Chinese enterprises flourished, the economy grew at a staggering pace, and countless individuals lifted themselves out of poverty.
The description of what China was doing at that time insinuated its own outcome – that at some point in the future, China would become even more socialist. Some believe Deng Xiaoping was being cryptic, suggesting his description was a way to sidestep communist ideology. Others believe he was sincere. Regardless of the interpretation, Deng Xiaoping has long passed away. It is apparent that the current Communist Party leader, Xi Jinping, seems to have embraced Deng’s narrative of stages, believing it is time for China’s political economy to advance towards a more socialist stage. Based on this conviction, he has caused significant damage to China’s economy.
Even before the global COVID-19 pandemic, Xi Jinping had already expressed his intent to move into the next stage. He displayed extreme dissatisfaction towards private enterprises. For instance, in 2018, his regime accused Wu Xiaohui, the founder and chairman of Anbang Insurance Group, of engaging in illegal activities. Wu Xiaohui was sentenced to 18 years in prison, but this was just the tip of the iceberg. The Beijing regime scorned private enterprises, leading to the seizure of Anbang Insurance Group.
Over the years, the Communist Party has continuously meddled in such matters, leaving a trail of misdeeds. They targeted two highly successful extracurricular tutoring companies – Beijing-based Juren Education and Hong Kong-based Wall Street English – cutting off their funding, resulting in both companies going bankrupt. These companies had served hundreds of thousands of students in China.
The Communist government also took similar actions against the retail giant Alibaba, founded by the successful entrepreneur Jack Ma, imposing fines on the company, alleging violations of the Anti-monopoly Law. Although the company survived, it has notably toned down its activities.
Xi Jinping publicly stated during the 19th Party Congress that it was time for China to enter a “new era,” transitioning from Deng Xiaoping’s development phase towards a more socialist/communist period. To clarify his stance, he subsequently emphasized in various speeches that private enterprise owners and managers need to become “politically astute,” spending less time on narrow commercial interests and instead “following the Party.” He spoke of the need to educate private business owners to align their minds with socialist ideology.
Private enterprise owners and managers have gradually come to realize that their future is increasingly uncertain, and their wealth is becoming more fragile. As Professor Chen Kang, an economist at the National University of Singapore, wrote in an article for the English e-magazine “Think China,” in such a business environment, they are undoubtedly considering asset relocation and emigration overseas rather than continued investment.
The Communist regime has taken various measures to make this transfer and relocation abroad difficult, yet private capital is evidently reluctant to invest, indicating that these individuals have received Xi Jinping’s message. Investments in productive assets by private entities typically account for half of the nation’s total investment, but even before all the rhetoric about the “new era” began, investment growth had slowed from over 23% in 2013 to 5% in 2019 and then declined significantly last year, albeit not by a large margin as per official Chinese data.
However, China’s economy is now accumulating various problems. The real estate crisis has affected home purchases, construction activities, and property prices. Washington, Brussels, and Tokyo are increasingly wary of trade with China, leading companies in developed countries to shift their procurement away from China. In light of these challenges, Xi Jinping and his officials in Zhongnanhai are reevaluating their stance towards private enterprises in China, at least for now, having to temper their arrogance. They urgently need to stimulate economic growth and hope for increased participation from the business community.
Therefore, it seems that Xi Jinping has changed his approach. He is no longer demanding loyalty to the Party’s interests from businesses but is instead telling business owners that they “belong to our common big family.” The Communist government recently introduced a 31-point plan to boost economic growth, including 28 measures to promote the development of private enterprise.
However, thus far, this plan has seen little positive response. As of February, the most recent period with available data, private fixed-asset investment showed almost no growth compared to the same period last year.
Frankly, Xi Jinping and the CCP officials may still gain some support from China’s private enterprises through coercive policies. Nonetheless, their success would only provide temporary relief rather than fundamentally resolve China’s economic issues. However, it is far from clear whether they have begun to win the support of private enterprises. As the saying goes, “Once trust is lost, it’s hard to regain.” Xi Jinping’s previous stance has clearly caused significant damage that will take a long time to remedy. And now, time does not seem to be on Xi Jinping’s side – neither for his economic policies nor his regime’s future developments. The future remains uncertain, and we can only watch and wait.
(Note: The original article included a brief biography of the author, Milton Ezrati, which has been omitted for brevity.)