Commentary: China wants the private sector to drive growth again, but trust can’t be rebuilt overnight

HONG KONG: At the start of 2019, Chinese President Xi Jinping convened senior officials in Beijing for a workshop to discuss and prepare for "black swan" and "grey rhino" events amid a slowing economy and rising international uncertainties.

This meeting followed then US President Donald Trump's initiation of a trade war against China in July 2018, which sent bilateral ties into a downward spiral.

Mr Xi urged officials to remain vigilant and address "major risks" across various fields, including politics, ideology, economy, society, technology and the external environment.

A black swan refers to an unpredictable market event with extreme financial consequences, while a grey rhino is a highly probable and impactful threat that is often ignored.

Since then, China’s leadership has taken decisive steps to tackle perceived grey rhinos, such as ballooning local government debts, struggling city and community banks, and the "irrational and barbaric growth of capital" in the private sector, particularly targeting big tech firms like Alibaba, which owns the South China Morning Post.

However, Beijing's harsh campaign against the private sector has inadvertently unleashed another grey rhino: A lack of confidence among private entrepreneurs.

STIFLING INNOVATION

This lack of confidence, known in China as "lying flat" or "tang ping”, initially caught on among the country's overworked youth who sought to do the minimum and take a break from relentless work.

During the three years of the COVID-19 pandemic, this malaise spread nationwide, affecting not only bureaucrats but also entrepreneurs.

It was also partially fed by fear that success in private business could come with political risks: In 2020, Beijing abruptly halted the US$34 billion IPO of fintech giant Ant Group, controlled by Jack Ma, after he reportedly criticised regulators for stifling innovation.

What ensued was a multi-year crackdown on the so-called "excesses" and "barbaric growth of capital" in the private sector, which has since driven entrepreneurs' confidence to historic lows.

Mr Ma largely disappeared from the public eye following those events, reinforcing concerns that China’s business climate had become too unpredictable.

Within this context, Mr Xi's high-profile meeting with selected private entrepreneurs, including Mr Ma, at the Great Hall of the People in Beijing on Feb 17 is significant - his first such meeting in nearly seven years.

ARE XI’S ASSURANCES ENOUGH?

According to Xinhua, Mr Xi reportedly told entrepreneurs, also including Mr Ma, Ren Zhengfei of Huawei and Wang Chuanfu of BYD, that it was "prime time for private enterprises and entrepreneurs to give full play to their capabilities”.

He assured them that the current difficulties and challenges facing the private sector could be overcome and called for renewed confidence in the future.

Mr Xi also vowed to create equal treatment for the private sector and pledged to ensure access to bank loans while addressing widespread illicit law enforcement and administrative actions, including arbitrary fees, fines, inspections and asset seizures.

Mr Xi’s remarks represent the strongest signal of support for private enterprises at a time when China’s economy is in a deflationary cycle, weighed down by falling property prices and low consumer confidence. Meanwhile, Mr Trump in his second term has threatened additional tariffs on Chinese products, and China’s exports, one of its traditional growth engines, remain bleak.

Beijing recently announced an economic growth target of "around 5 per cent" for this year, but revitalising the private sector is crucial to achieving this goal, especially since the private sector contributes about 60 per cent to China’s gross domestic product and over 80 per cent of employment.

Will Mr Xi’s words be enough? After all, China had already been unwinding its crackdown on the private sector starting in 2023, with officials increasing pro-business rhetoric and referring to private entrepreneurs as "one of us”.

Yet in many cash-strapped localities, illicit actions against the private sector, including arbitrary fees, fines, and asset seizures, have continued unabated.

Mr Xi’s remarks are expected to curb these illicit actions, but whether they will spark optimism among private businessmen remains to be seen.

A REAL TURNING POINT?

Sensing scepticism, official media has ramped up efforts to reassure the private sector.

Notably, the People’s Daily, the Chinese Communist Party’s newspaper of record, recently published a long article titled I Have Always Supported Private Enterprises, highlighting Mr Xi’s support for the private sector and countering scepticism that he favours the state sector.

China’s latest efforts to reassure the private sector are a step in the right direction, but more needs to be done to restore confidence. The global success of DeepSeek’s AI language model and the popular animated film Ne Zha 2, both funded and developed by private entrepreneurs, offers significant insights.

More than anything, the rise of DeepSeek demonstrates that the private sector has elevated itself to drive China’s innovation and cutting-edge technologies, moving beyond its traditional role of job creation and playing second fiddle to the state sector.

The fact that the Hangzhou-based company was under the official radar until its sudden rise to fame suggests that if the government allows the private sector to operate without political, ideological and regulatory straitjackets, it can produce global winners.

This is likely the best way to restore confidence and tame the charging grey rhino.

Wang Xiangwei is a former Editor-In-Chief of South China Morning Post. He now teaches journalism at Hong Kong Baptist University.