China’s leader, Xi Jinping, used his annual 2021 New Year’s speech to praise the patriotic achievements of the Chinese people. In a year marked by a crackdown on tech companies, curbs on lending by the country’s real estate companies and a refusal to budge on restrictive Covid policies, Mr Xi made no direct mention of the economy or business.
In the first minute of his most recent speech, Mr Xi praised the country’s economy, still the second largest in the world, explaining that China had cut taxes and fees and introduced measures “to ease the burden on businesses”. A few weeks earlier at a meeting to set policy goals for 2023, Mr Xi and other top leaders expressed the need to strengthen the economy and pledged support for the private sector.
The disciplinarian of China Inc. became a cheerleader.
“The Chinese economy enjoys strong resilience, huge potential and great vitality. The fundamentals sustaining long-term growth have remained strong,” said Mr. Xi in the speech, while urging the Chinese people to “remain confident”.
In recent weeks, acting on signals from the top, Chinese officials have embraced the kind of business-friendly language that has been absent in recent years. With the same fervor with which it once defended the need for an all-out war against Covid, China is campaigning to convince companies that it is prioritizing economic growth.
Xi’s signature initiatives from just a few years ago are starting to be reversed. After Jack Ma, China’s most famous tech tycoon, was recently forced to relinquish control of a prized asset, there are signs that Big Tech is finally emerging from the regulatory doghouse.
Like when China suddenly reversed course a month ago with its “zero Covid” strategy, this latest turnaround is a recognition of the fragile state of the country’s economy. Growth is at its slowest pace in decades, hampered by a real estate market in crisis, a lack of promising youth jobs, consumer confidence shaken by years of rigid covid policies and depleted local government coffers.
In recent years, China had abandoned a pro-business market overhaul in favor of a more state-controlled economy, in which business interests were subordinated to the goals of the Chinese Communist Party. China’s handling of the pandemic and growing ideological influence on its economic policies has led many businesspeople to question whether the country is still a reliable place to operate. Companies like Apple have sought to diversify outside of China with greater urgency.
After reining in the influence of powerful internet conglomerates through aggressive regulation, China’s central bank said this week it was easing its oversight of tech companies. Through a series of measures launched last month, China has gradually rolled back restrictions on heavy lending by property developers and has indicated its intention to continue doing so.
China’s Finance Minister Liu Kun told state media that the country planned to spend heavily in 2023 to support an economic recovery through a mix of stimulus spending, subsidies and tax cuts.
It is still unclear whether these changes will be enough.
“There’s a lack of confidence right now and it’s not going to go away,” said Duncan Clark, chairman of BDA, a Beijing-based investment advisory firm. He said companies now take a greater risk by operating in China than they did in the past.
Xiang Songzuo, a Chinese economist and former official at the People’s Bank of China, said he didn’t think there had been a fundamental change in the way China’s leaders conducted business, but that their language had softened due to the sluggish economy. .
In today’s economy, China needs private companies to invest more, hire more, and pay more taxes. As a result, the tone has changed to “reassure and calm them down,” said Mr. Xiang. But tensions remain as China wants to retain control of private companies and not simply entrust oversight to markets or existing laws.
Beginning around 2020, China intensified scrutiny of the business and data-gathering practices of its largest technology companies, such as ride-hailing service Didi Global and Ant Group, the financial technology sister company of e-commerce giant Alibaba.
Chinese officials abruptly suspended Ant Group’s IPO late that year after Mr. Ma had criticized China’s banking industry as backward. Chinese regulators forced Ant to register as a financial holding company and separate its payment app from its financial services. The public listing never took place.
Last month, the tone shifted. In outlining policy goals for this year, Chinese officials said they had plans for more “normalized supervision” of tech companies.
In what appeared to be a coda to China’s crackdown on Big Tech, Ant Group announced on Saturday that Mr. Ma would give up control of the company.
Around the time Ant announced the change of power, Guo Shuqing, the Communist Party secretary at the People’s Bank of China, said the so-called rectification campaign at the biggest tech companies was “almost complete.”
China has also said it will take necessary steps to revive a housing market that has been strained in recent years by Beijing’s efforts to curb reckless lending by real estate companies.
The government, alarmed by the sharp downturn in the real estate market and growing unrest over unfinished apartment buildings, has lifted many of the debt restrictions devised to rein in businesses. China has also urged banks to lend more to developers to complete unfinished apartments while making it easier for developers to borrow.
However, these steps fail to address a core problem: Chinese consumers, once avid real estate buyers, are not interested. According to China Index Academy, a real estate research firm, sales of the 100 largest developers were more than 40 percent lower last year than the year before.
The challenges faced by Chinese companies extend beyond borders. Jacob Rothman, a co-chief executive of Velong Enterprises, a manufacturer of kitchen and grilling equipment based in southern Guangdong province, says China’s economic outlook will not improve until Beijing and Washington stop escalating tensions for political gain in China. own country.
As China became the factory floor of the world, Mr. Rothman expanded from a single production site 20 years ago to six factories in the country today. It now employs more than 1,000 Chinese workers, who produce many common kitchen items, including bowls, knives and other cooking utensils.
Mr Rothman, an American who has lived in China for more than two decades, says it is difficult to keep investing without improving diplomatic relations, which began to deteriorate during the Trump-era trade war. Exports account for about 20 percent of China’s economy, and the United States remains the largest buyer of Chinese goods.
While it’s hard to match China’s productivity and efficiency elsewhere, Velong has added facilities in countries like Vietnam and Cambodia as customers worry they are too reliant on China. It’s a concern that has become more urgent, he said.
“Right now it’s a must-have, and people are specifically saying we want an option other than China,” said Mr. Rothman.
Chang Che contributed reporting.
