Beijing’s Planners Find Strange (and Likely Ineffective) Ways to Get Buy-In From Private Investors

People dine at a restaurant at a shopping mall in Beijing, on May 26, 2023. Jade Gao / AFP via Getty Images

China’s beleaguered economy could use a dose of private investment—for expansion and for hiring—however, private business remains reluctant. Beijing’s planners at the National Development and Reform Commission (NDRC) have put forward a 17-point scheme to turn the situation around. It relies so heavily on government direction that it is hard to see how much it will inspire private Chinese businesses and, consequently, how successful the effort will be. It’s even hard to see whether the NDRC will push activity in economically appropriate directions.

Beijing knows how crucial private business is to China’s economy. Small and medium-sized firms—those that Beijing designates as having “56789” characteristics—account for more than 90 percent of the businesses operating in China today. They produce 60 percent of the economy’s total goods and services and 70 percent of its innovative capacity. They employ 80 percent of those working in urban areas and create 90 percent of new jobs. They also contribute half of all government revenues.

Yet, as of the most recent data, private business still hasn’t recovered from the COVID-19 pandemic. In 2023, according to the most recent period for which complete data are available, private business expanded at a mere 1.9 percent, compared to 4.4 percent for state-owned businesses. More telling, private business has actually cut its investment spending by 0.2 percent. This reluctance and lack of dynamism is a major drag on China’s economy.

To deal with this matter, the NDRC has updated a 17-point plan to encourage private firms to accelerate their capital spending. Overwhelming as that much detail may sound, most of the points deal with how Beijing’s planners will interact with local governments to determine where private investment money should go. The NDRC plans to identify what it refers to as “key industries” that its planners believe will have “strong development potential.”

After inviting input from provincial development and reform commissions, the NDRC will promote investment in these industries with private firms. The planners indicate that most of these opportunities will lie in transportation, water conservancy, clean energy, new infrastructure, advanced manufacturing, and modern agriculture.

According to the initial press briefing by the NDRC, the planners have identified some 2,900 investment projects suitable for private investment. Along with local planners, the NDRC will use what it calls “pre-acceptance inspections” to screen potential investors. The planners calculate that the whole effort should absorb some 3.2 trillion yuan (about $470 billion).

To encourage participation, the NDRC will offer participating private businesses resource guarantees against shortfalls in supplies, credit information, and for infrastructure projects, they will streamline the development of real estate investment trusts (REIT). They will also lay the potential projects before relevant departments to shorten waiting times for approvals. For the acquisition of credit, the NDRC intends to present the projects to both state-owned and joint-stock banks. These financial institutions will then conduct an independent review of the projects, according to “market principles,” the planners say, though the documents remain vague on exactly what that means.

The plan strangely lacks any room for private firms to let planners know where they think the greatest opportunities lie and, by implication, where the greatest growth and profit opportunities lie. The plans do make provisions to listen to private concerns and promise regular surveys to get feedback from private companies. There’s, however, no provision to solicit guidance from the private firms themselves. On the contrary, the plans suggest that private firms consult with local authorities for guidance on management and supervision.

As well thought out as all this may sound, the plans are fundamentally flawed. To deny the businesses involved any role in guidance is to immediately cut off the effort from the most intimate industry insight available. No matter how well the authorities pave the way for the projects that they prefer, they will have denied themselves the best guidance on whether those projects are the most promising.

Any success then will depend almost entirely on a lucky coincidence between what the planners like and whether businesses think of those preferences are promising. And luck is a bad way for any economy to proceed.