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

Are Xi’s Assurances Enough?

President Xi Jinping’s recent remarks to a group of high-profile entrepreneurs, including Jack Ma of Alibaba, Ren Zhengfei of Huawei, and Wang Chuanfu of BYD, have sparked widespread discussion about the future of China’s private sector. According to Xinhua, Xi emphasized that now is the “prime time” for private enterprises and entrepreneurs to demonstrate their potential, signaling a strong commitment to supporting the private sector during a challenging economic period. He assured them that the current difficulties could be overcome and urged renewed confidence in the future. Xi also pledged to address key issues such as unequal treatment of private businesses, ensuring access to bank loans, and cracking down on illicit law enforcement actions like arbitrary fees, fines, and asset seizures.

These assurances come at a critical moment for China’s economy, which is grappling with a deflationary cycle marked by falling property prices and low consumer confidence. Externally, the threat of additional tariffs from former U.S. President Donald Trump during his second term has further clouded the outlook for China’s exports, a traditionally vital driver of growth. In this context, Beijing has set an economic growth target of “around 5 per cent” for this year, but achieving this goal hinges largely on the vitality of the private sector, which contributes approximately 60 per cent of China’s GDP and over 80 per cent of employment. Xi’s words are intended to breathe new life into this crucial sector, but the question remains: will his assurances be enough to restore confidence and drive growth?

A Much-Needed Boost to the Private Sector

The private sector in China has faced significant headwinds in recent years, prompting concerns about its ability to sustain growth. While the government has taken steps to ease pressures—for instance, by scaling back its regulatory crackdown on tech and other industries that began in 2022—many challenges persist. Local authorities in cash-strapped regions have often resorted to predatory practices, such as imposing arbitrary fees, fines, and seizing assets, which have squeezed small and medium-sized businesses in particular. These actions have eroded trust in the government’s commitment to fostering a favorable business environment, despite the pro-business rhetoric that has gained traction in recent months.

Xi’s latest remarks aim to address these concerns directly. By vowing to create equal treatment for private enterprises and tackle systemic issues that have long plagued the sector, he is signaling a shift toward more tangible support. This is particularly important given the private sector’s outsized role in innovation and job creation. However, whether these assurances will translate into meaningful change remains to be seen. While Xi’s words are a step in the right direction, entrepreneurs and investors will likely wait to see concrete actions before fully regaining confidence.

Economic Challenges and the Road Ahead

China’s economic landscape is increasingly complicated, with both domestic and international factors contributing to uncertainty. Domestically, the property market remains weak, and consumer spending has been sluggish, further dampening economic momentum. On the global stage, China’s exports face an uncertain future, particularly as geopolitical tensions with major trading partners like the United States continue to simmer. The combination of these factors has led to a pessimistic outlook among many private businesses, which are now looking to the government for clearer signs of support.

In this context, Xi’s assurances to entrepreneurs are not just a symbolic gesture but a necessary intervention to stabilize expectations. For China to meet its growth target of around 5 per cent this year, the private sector must be empowered to innovate, invest, and hire. Without a thriving private sector, achieving this goal will be an uphill battle. But while Xi’s remarks have been well-received, the real test lies in implementation. If the government can deliver on its promises to curb illicit actions and level the playing field, it could unlock significant economic potential.

Will Entrepreneurs’ Confidence Be Restored?

Despite Xi’s strong rhetoric, skepticism lingers among many in the private sector. Past experiences have shown that even when policymakers express support for private enterprises, local officials often continue to act in ways that undermine business confidence. For example, reports of arbitrary fees, fines, and asset seizures have persisted in some regions, despite central government directives to end such practices. Entrepreneurs are likely to remain cautious, especially given the unpredictability of regulatory enforcement and the broader economic environment.

Moreover, the private sector’s trust in the government was eroded during the regulatory crackdowns of recent years, which targeted some of China’s most successful companies, including tech giants like Alibaba and Tencent. While the government has since softened its tone, many entrepreneurs are waiting to see whether the new pro-business stance will lead to lasting change. Restoring confidence will require sustained effort, including consistent policy implementation and greater transparency in how laws and regulations are enforced. Anything less risks leaving the private sector in a state of limbo, unable to fully realize its potential.

Broader Implications for China’s Economy

The success of Xi’s assurances will have far-reaching implications for China’s economy and its ability to navigate the challenges ahead. If the private sector responds positively to these measures, it could lead to increased investment, innovation, and hiring, which would help stabilize economic growth. This, in turn, would send a positive signal to international markets, reinforcing China’s reputation as a stable and attractive destination for foreign investment.

However, if the government fails to follow through on its promises, the potential consequences are significant. A lack of progress could lead to continued stagnation in the private sector, undermining China’s growth prospects and increasing its vulnerability to external shocks. This would not only harm the economy but also raise questions about the government’s ability to manage the transition to a more sustainable, innovation-driven growth model.

In conclusion, while Xi’s assurances to private entrepreneurs are a welcome and necessary step, they are only the beginning. The road ahead will require sustained effort to address the systemic challenges facing the private sector, rebuild trust, and create a more favorable business environment. Whether these assurances will be enough to revitalize the private sector and drive economic growth remains to be seen.