Despite Chinese Communist Party (CCP) propaganda, few believe the politicized gross domestic product (GDP) data, which claim growth of more than 5 percent in 2023 and aim for similar growth in 2024. One of the numerous reasons cited for slowing Chinese growth stems from the years-long crackdown on private enterprise in China.
Will Beijing make good on its promise to support free enterprise this time?
The Chinese economy faces a litany of structural issues with no easy fix. It stares at an aging population and demographic collapse the size of which the world has never seen. Current projections show that the Chinese population will drop from 1.4 billion to about 550 million by the end of the century. It’s simply hard to maintain total GDP growth when the total number of people contributing to GDP is falling and aging so rapidly.
One of the policy fixes analysts and Chinese intellectuals raised is boosting private enterprise. A wealth of evidence and research supports the notion that declining private enterprise has contributed to the slowdown in Chinese economic growth.
Even dating back to the opening up in the late 1970s, Chinese entrepreneurs succeeded not because of the state but despite the state. Even companies now considered CCP stalwarts, such as Huawei, famously had to fight for even the smallest of bank credit and self-funded their early growth. Even major export-earning sectors received minimal help from state-owned banks.
Research from Chinese and non-Chinese scholars demonstrates that Chinese private enterprise is a key source of innovation and disciplined capital use. New and private Chinese firms are significantly more innovative, with innovation declining over time as they grow, attracting more state attention and access to subsidies. We see state-driven inefficiencies elsewhere. As Beijing announces targeted sectors for preferential financing, it sets off a cycle of boom and bust, with companies rushing into the industry lacking expertise but receiving substantial finance and subsidies. This is inevitably followed by a mass exodus and losses of firms simply sucking up state subsidies.
What worries Chinese entrepreneurs more is the precariousness of building a business only to have it confiscated or key members jailed, not unlike the worries of Western firms with personnel in China. Entrepreneurs express concerns about the heavy-handedness of the state, from pandemic-induced lockdowns that devastated numerous businesses to the continued allocation of state-owned bank finance to state-owned enterprises, depriving private enterprises of essential financial support. Furthermore, the creation of offices by the CCP to oversee even the most routine corporate affairs adds to these worries.
The CCP is working to address these concerns. Whether it will accomplish anything is another question.
In September 2023, the powerful National Development and Reform Commission announced the creation of the Private Economy Development Bureau. Nearly six months later, there is little evidence of policy influence or new policies to promote private enterprise. It seems counterintuitive to put a powerful CCP commission in charge of the private enterprise development bureau. Communists have historically never been known as great supporters of private enterprise.
Beijing recently announced it was working on a draft law to support private enterprise, though details remain scant. This follows news reports that Chinese state-owned enterprises were forced to create corporate militaries reminiscent of Mao-era China practices. There remains the Gordian knot for China and its relationship with private enterprise: Is China communist or free market? As has been said, you cannot be a little pregnant, and similarly, a state led by an authoritarian party cannot be a little bit communist.
So can this contradiction be resolved?
It seems unlikely. The CCP operates upon the premise that it holds absolute control over everything in China under the leadership of Xi Jinping. If the Communist Party has absolute power and can behave without constraint with regard to people or companies, then the mere idea of free enterprise cannot exist. Private enterprise exists only to serve the whims and needs of the state rather than operating based on its inherent right to exist. As long as the CCP claims dominion over the soul of China, the hopes for private enterprise will remain dim.
Just as man cannot serve two masters, as the Communist Party demands that subjects prioritize serving its supremacy above all else, private enterprise has no chance of existing to serve its owners and workers.
