Pri­vate Chi­nese com­pa­nies worry Bei­jing is more fo­cused on big state firms

Business World - - Theworld -

BEI­JING — An un­prece­dented con­ver­gence of eco­nomic stresses this year is weigh­ing on China’s once vi­brant pri­vate sec­tor, com­pelling some en­trepreneurs to ques­tion the ef­fec­tive­ness — and true in­tent — of Bei­jing’s poli­cies.

Some of the mil­lions of strug­gling pri­vate firms are wor­ried Bei­jing is more fo­cused on sup­port­ing giant state-owned en­ter­prises (SOEs), even as China cel­e­brates the 40th an­niver­sary of land­mark eco­nomic re­forms that rekin­dled en­trepreneur­ship in the com­mu­nist coun­try.

In a meet­ing with en­trepreneurs aired on na­tional TV last week, Pres­i­dent Xi Jin­ping threw his back­ing be­hind pri­vate com­pa­nies, pledg­ing tax cuts and an equal busi­ness en­vi­ron­ment for all firms. He also reaf­firmed fi­nan­cial sup­port for the sec­tor.

But Mr. Xi also re­it­er­ated his de­fense of the state sec­tor, say­ing re­forms and tighter su­per­vi­sion of state firms will help pro­tect state as­sets that be­long to all Chi­nese peo­ple.

“The long-term pres­sure will be very big, be­cause it’s ob­vi­ous that large en­ter­prises will have more and more ad­van­tages, and small firms can only be ‘eaten up’ or go bank­rupt,” said Bi Ji­acheng, man­ager at Nan­tong Kun­stronger La­bor Pro­tec­tive Prod­ucts Co., which makes pro­tec­tive gloves in eastern Jiangsu prov­ince.

“Pri­vate firms pro­vide most jobs and sta­ble taxes, that’s why the state needs to sta­bi­lize the pri­vate sec­tor.”

With eco­nomic growth slow­ing and Bei­jing crack­ing down on riskier forms of bor­row­ing, China’s pri­vate sec­tor is grap­pling with a fi­nanc­ing crunch that has pushed some firms into dis­tress.

So far this year, at least 40 listed pri­vate firms have an­nounced stake sales to state firms on the back of fi­nan­cial stresses wors­ened by the stock mar­ket rout, ac­cord­ing to state me­dia.

Pri­vate firms say they have also lost out to SOEs as en­vi­ron­men­tal in­spec­tors shut small fac­to­ries in the name of cut­ting pol­lu­tion, while many ex­porters are vul­ner­a­ble to the trade war with the United States.

Faced with un­cer­tain­ties, some pri­vate firms have cho­sen to main­tain the sta­tus quo, rather than ex­pand.

“Pri­vate en­ter­prises should not con­sider ‘big­ger and stronger,’ but con­sider ‘do­ing stronger in the mid­dle,’ be­cause if they are big­ger, it’s nec­es­sary to con­sider the re­la­tion­ship be­tween the state, so­ci­ety and gov­ern­ment,” said Sam Yu, gen­eral man­ager at MENTECHS, a maker of in­dus­trial equip­ment in Jiangsu prov­ince’s Changzhou city.

One pri­vate ceram­ics man­u­fac­turer said his firm was forced to re­lo­cate op­er­a­tions from Zibo in eastern Shan­dong prov­ince af­ter a big in­dus­trial re­struc­tur­ing saw many lo­cal pri­vate firms shut down in a pol­lu­tion and reg­u­la­tory crack­down.

An­other owner of a com­pany sup­ply­ing food to the trans­porta­tion in­dus­try com­plained his busi­ness had shrunk due to can­ni­bal­iza­tion from the state sec­tor.

In the past, food for pas­sen­gers was mainly man­u­fac­tured by pri­vate com­pa­nies, but nowa­days SOEs dom­i­nate he said, de­clin­ing to be named for fear of ret­ri­bu­tion.

China’s State Coun­cil In­for­ma­tion Of­fice, the gov­ern­ment’s pub­lic re­la­tions arm, and the Na- tional De­vel­op­ment and Re­form Com­mis­sion, the top state plan­ner, did not im­me­di­ately re­spond to Reuters’ re­quests for com­ment.

For much of the past three decades, pri­vate firms have flour­ished as China opened up its econ­omy. Then in the last global fi­nan­cial cri­sis, SOEs staged a come­back thanks to Bei­jing’s mas­sive stim­u­lus — a shift pop­u­larly known as “the state sec­tor ad­vances, the pri­vate sec­tor re­treats.”

Vice-Pre­mier Liu He said in Oc­to­ber that talk of the ad­vance of SOEs at the ex­pense of pri­vate firms was “one-sided” and “wrong.”

State-owned banks and en­ter­prises were help­ing and even re­struc­tur­ing pri­vate firms fac­ing fi­nan­cial stress, he ar­gued.

Given its fo­cus on sta­bil­ity, Bei­jing does not want to see un­hap­pi­ness among pri­vate firms widen­ing, po­ten­tially gal­va­niz­ing la­bor ac­tivism or strength­en­ing ef­forts at union­iza­tion.

“China’s pri­vate econ­omy can only grow and not be weak­ened. Not only can it not exit from the stage, it must move to­wards a big­ger stage,” Mr. Xi said last week.

Pol­icy mak­ers have in re­cent months un­veiled mea­sures to lower fi­nanc­ing costs, cut taxes and fast-track more in­fra­struc­ture projects, although an­a­lysts say such mod­est stim­u­lus may take time to put a floor un­der the slow­ing econ­omy.

China’s man­u­fac­tur­ing sec­tor barely grew in Oc­to­ber, while the ser­vices sec­tor crept close to the line that di­vides growth from con­trac­tion.

Last month, the cen­tral bank rolled out a pro­gramme to pro­mote bond fi­nanc­ing by pri­vate firms, af­ter achiev­ing lim­ited suc­cess in chan­nelling more credit to small firms via four re­serve re­quire­ment cuts this year.

While new bank loans have risen this year, other “shadow” lend­ing has shrunk, weigh­ing on the ca­pac­ity of smaller pri­vate firms to grow and pros­per.

“We can see some re­sults in the short term given the cen­tral gov­ern­ment has sent out strong sig­nals and taken strong mea­sures to sup­port small and pri­vate firms,” said an ad­viser to the gov­ern­ment.

“But this is not enough. Over the long term, we need to look at fun­da­men­tal ideas and fun­da­men­tal re­forms — how to deal with the re­la­tion­ship be­tween SOEs and pri­vate firms.” —


THE CITYSCAPE of the Bei­jing Cen­tral Busi­ness District is re­flected on a pond at sun­set in this Oct. 17 photo.

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