Beijing’s tilt towards state-owned enterprises raises doubts about future of private sector in Chinese economy

As China celebrates the 40th anniversary this year of reforms that opened up its economy, doubts have arisen about Beijing’s commitment to letting the private sector play a decisive role, a principle that has helped it emerge as the world’s second-largest economy.

While Beijing has talked up the need to support small and medium-sized private companies, which form the backbone of the economy, the government has allowed state-owned enterprises (SOEs) to accumulate more resources and clout. This has come at the expense of private companies, and has opened up a debate about Chinese economic policy – and its priorities.

China’s debt-cutting efforts are sinking private companies, while debt-ridden state firms float on

The debate came to a head last week, when Wu Xiaoping, a self-proclaimed financial expert, wrote in a post on a Chinese news portal that the private sector had “completed its historic mission” of helping SOEs achieve major leaps in development, and that now it should “fade away”. He said private enterprises did not show any discipline or planning for long-term considerations, and could not help China face increasingly strong international competition, a reference to the ongoing trade war with the United States.

Wu’s article, posted on Beijing-based platform Jinri Toutiao, was taken down. But his words spread like wild fire through Chinese social media, triggering a heated debate over whether Beijing was in the process of marginalising the private sector.

Systematically marginalised?

What is clear is that private companies, which account for 60 per cent of China’s gross domestic product and 80 per cent of jobs in urban areas, are having an increasingly tough time, while SOEs are becoming larger and stronger.

During the first seven months of 2018, the accumulated profit at private industrial companies with annual revenues of more than 200 million yuan (US$29.2 million) was 1.02 trillion yuan, a decline of 27.9 per cent from a year earlier, with the decline accelerating from previous periods, according to the National Bureau of Statistics (NBS) in Beijing.