Q&A on China's new planner, not watchdog, for private economy

China has recently set up a bureau under the country's top economic planner to ramp up the growth of the private sector. Why does it matter and how will the bureau and its policies shape the future?

Nov 19, 2023

Inaugurated in early September, the private economy development bureau is affiliated to the National Development and Reform Commission (NDRC), China's top economic planner, and tasked with the mission of facilitating the development of private sector.

Under China's basic economic system, public ownership plays a leading role and all forms of ownership grow side by side. By upholding and improving the system, China says it will unswervingly consolidate and develop the public sector of the economy, unswervingly encourage, support and guide the development of the non-public sector of the economy, give full play to the decisive role of the market in allocating resources, and better play the role of the government.

State-owned Assets Supervision and Administration Commission (SASAC) of the State Council was established in April 2003, responsible for supervising the preservation and increment of state-owned assets of the centrally-administered state-owned enterprises (SOEs) (excluding financial firms), promoting reform and restructuring of SOEs, advancing the establishment of modern enterprise system and improving corporate governance in supervised SOEs and optimizing strategic layout and structure of the state economy.

However, there had been no single agency dedicated to either overseeing or serving the development of the private economy before the set-up of the private economy development bureau. Private entrepreneurs tended to use the metaphor of "Nine dragons ruling the water" to describe the government's too fragmented and sometimes even conflicting regulatory functions.

For some time last year, there were some incorrect discussions negating private economy, which made some private entrepreneurs feel worried, Premier Li Qiang told a press conference at the year's national legislative meeting in March.

He then gave a public reassurance that the country would vigorously create a market-oriented, law-based and international business environment, treat enterprises of all types of ownership equally, enhance property rights protection, protect entrepreneurs' rights and interests in accordance with the law, promote fair competition among all business entities, and support the development and growth of private enterprises.

In July, the Central Committee of the Communist Party of China and the State Council jointly released an opinion on Promoting the Development and Growth of the Private Economy.

Two months later, the private economy development bureau was inaugurated, the first of its kind dedicated to the private sector. But unlike the SASAC which functions more like a watchdog, the new arm of the NDRC is more service-oriented. Some domestic scholars applauded the move, saying private sector has got someone to back them up.

1. How important is the private economy?

The majority of China’s private sector are small and medium-sized enterprises. But the magnitude of their influence is not to be sneezed at, especially in terms of job creation and contributions to growth, technical innovation and household wealth accumulation.

Statistics from the NDRC showed that from 2012 to 2022, the ratio of private enterprises in the country's total number of enterprises increased from 79.4 percent to 93.3 percent. In terms of foreign trade, private enterprises have contributed the largest share since 2019, while accounting for 50.9 percent of the total volume in 2022.

Concerning employment, the share of jobs created by private industrial enterprises above the designated size rose from 32.1 percent to 48.3 percent in the period from 2012 to 2022.

2. What are the challenges of developing the private economy?

Running small businesses have been particularly tough in the past three years thanks to the coronavirus-triggered economic slowdown worldwide, weakened market demand and the lack of confidence for future development.

To help small businesses cope with existential threats and secure employment, the Chinese government has outlined a range of policy support for those hard hit by the COVID-19 pandemic, in particular catering, retail, and travel. The policy mix includes individual income tax reduction, value-added tax exemptions and reductions, corporate income tax incentives, fiscal support measures and preferential tax treatments to lower financing costs.

Although much of this policy support has been extended this year, and small businesses are gradually recovering, there are still challenges to be tackled from the perspective of seeking long-term development. They are as follows:

Political headwinds such as regional conflicts, unilateralism, protectionism, de-globalization, de-risk and de-coupling have caused disruptions to supply and industrial chains, putting China’s private businesses to disadvantage.
Sluggish economic recovery worldwide dampens market expectations, pents up demand and hurts purchasing power.
Entrepreneurship and innovation need to be further encouraged, and private businesses still lack R&D investment and innovation capacity, and thus have their development space constrained.
Financing difficulties continue to plague private businesses, preventing them from expanding scale and building up technical strength.
Corporate governance capabilities need to be improved to tackle the common problems in enterprise operation such as high production costs, low added value, and inadequacy in industrial transformation and upgrading.
Business environment needs to be further optimized to facilitate government-enterprise communication，prevent administrative interference in enterprise operations and ensure fair competition among companies with different ownership.

3. What are the tasks of the bureau for private economy development?

"China will step up policy support and provide a better service to the private sector to facilitate its development and will organize six major service platforms to deliver quality services to private firms.
It will implement equal treatment of private enterprises from institutional and legal levels, actively expand space for quality development in the private sector, and build service platforms."
— Wei Dong, head of the bureau for private economy development under the National Development and Reform Commission.

Wei, speaking in an interview with China’s state media, highlighted the bureau's function of providing services to the private economy, noting that the main responsibilities of the bureau include staying on top of the development of the private economy, focusing on its needs, and coordinating and organizing the formulation of policies and measures to promote its development, and providing policy incentives to promote the growth of private investment.

The bureau will also be responsible for establishing a mechanism for regular communication with private enterprises, coordinating efforts to solve major problems concerning the development of the private economy, and working toward enhancing its international competitiveness, according to Wei.

To that end, the bureau has taken concrete measures in its latest moves. For example, it has added local government support for the development of the private sector to the list of matters to be annually supervised by the State Council, and rewards will be given to those excelling.

Legislation in support of private sector is expected to pick up pace while administrative regulations, rules and normative documents that are no longer conducive to private businesses will be abolished.

The bureau also aims to provide better guidance and support to private enterprises in preventing and responding to external challenges such as trade protectionism, unilateralism, and "long-arm jurisdiction." It will strengthen departmental coordination and coordination, and establish a coordination mechanism to prevent and defuse risks for the safety of private businessmen overseas.

4. What expectations does the market have for the bureau for private economy development?

The followings are the key points Peking Ensight has gleaned from domestic media reports and review articles on the market expectations of the new establishment:

Create a market environment for fair competition; future industrial policies should focus more on giving play to the role of market mechanisms and forming a market environment where everyone can compete on an equal footing;
Regulate and standardize government functions, prevent interference in corporate decision-making; expand the line of communication between governments and entrepreneurs, and give full play to the role of entrepreneurs in the formulation and evaluation of enterprise-related policies, plans, and standards;
Assist private businesses in their digital transformation and technological transformation, encourage private enterprises to carry out research and development of universal digital technologies, and participate in the investment and application innovation of new infrastructure such as data centers and industrial Internet; support private enterprises in stepping up green and low-carbon transformation of production processes, equipment, and technologies to enhance the resilience of industrial chain;
Boost private businesses’ international competitiveness, support private enterprises to expand into the research and development of core components and high-end manufactured products based on their actual conditions.

5. How will the bureau help revitalize the private economy?

In more than two months since its establishment, the bureau has worked mainly on three fronts to address the needs of private sector, according to Li Chao, spokesperson of the NDRC.

First, improve the normal communication and exchange mechanism with private enterprises. A series of events have been organized for private entrepreneurs to communicate with governments at different levels, expressing their demands and giving suggestions face-to-face.
Second, encourage experience sharing and mutual learning among different localities to improve services for private businesses. Not long ago, an event on promoting the development and growth of the private economy was held in Wuxi, eastern China’s Jiangsu Province, where relevant governmental departments from different localities got together to share their experiences and good practices in policy innovation in an effort to boost the development of private businesses.
Third, accelerate policy research on key issues essential to the optimization of business environment.

The work involves mulling the establishment of an index system to track the development of the private economy, and studying the possible measures to enhance the international competitiveness of private businesses and support them to build up brands.

Peking Ensight