Investment Hesitant Due to Policy Uncertainty
Proliferation of Companies Intensifies Competition
Although the Chinese government has been emphasizing the role of private enterprises during the economic recovery period, it has been pointed out that in reality, these companies are facing a survival crisis due to being overshadowed by state-owned enterprises. Despite Premier Li Chang, the 'second-in-command,' expressing strong support, private companies are still suffering from policy uncertainty and intensified competition.
On the 11th, Hong Kong's South China Morning Post (SCMP) reported that "the Chinese government's mentions of support for private enterprises are perceived as 'lip service,'" adding that "their sluggishness risks further delaying China's post-COVID recovery."
According to the National Bureau of Statistics, fixed asset investment by Chinese private enterprises from January to May this year decreased by 0.1% compared to the previous year, while state-owned enterprises increased by 8.4%. During the same period, profits of private enterprises with annual sales exceeding 20 million yuan (approximately 3.6 billion KRW) sharply dropped by 21.3% to 683.8 billion yuan, whereas profits of state-owned enterprises (962.5 billion yuan) only decreased by 17.7%.
Competition among private enterprises is also intensifying. According to the State Administration for Market Regulation, the number of registered private enterprises reached 50.9 million as of the end of May, a 3.7-fold increase compared to 10.86 million at the end of 2012. Private enterprises account for 92.4% of all enterprises in China. Liu Yuanchun, president of Shanghai University of Finance and Economics, recently emphasized in an interview with a think tank that "the lack of trust in private capital is a significant issue that could affect the system," and "special attention should be paid to whether the private sector can enjoy space, availability of funds, and fair competition," SCMP reported.
SCMP particularly pointed out that the private sector in promising industries such as new energy is facing policy uncertainty. It introduced the story of an entrepreneur who leased 0.5 square kilometers of land in Guangdong Province earlier this year for a centrally planned solar panel installation project but is now at risk of losing an investment of 20 million yuan. Although the solar energy project was registered with the authorities, the project was suspended by the authorities citing the need to secure arable land.
Lin Chai, deputy director of the China Senior Economic Forum Research Institute, stated, "Resource shortages and lack of confidence have led to disparities in recovery among enterprises after the pandemic," emphasizing that "support for the private sector should not be mere words." Lin criticized, "At the beginning of China's reform and opening-up, policies were very stable, which led to private prosperity. However, in recent years, private enterprises have witnessed unstable policies." He added, "They are excluded from government support, and concrete actions to treat them equally and fairly are insufficient. Unlike state-owned enterprises that can rely on national support, entrepreneurs must bear risks and losses, so they only invest when they are confident."
Jang Won-kui, a researcher at the State Council Development Research Center, warned, "Such uneven recovery affects China's overall economic growth and could potentially hinder the country's long-term modernization plans." Jang added, "Endless inspections and rectification demands arbitrarily and forcibly carried out by some local governments harm the basic rights and interests of private and individual entities," emphasizing that "market-oriented reforms based on the rule of law should be at the core of efforts to build a business-friendly market environment."
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