China has started to sweet talk private sector again but actions speak louder than words – much more needs to be done to shore up confidence of entrepreneurs who are watching from afar

Many Chinese tycoons are spending more time in Singapore or Dubai amid political uncertainty and concerns for their personal wellbeing.

Thought of the Day on China

Wang Xiangwei

Over the past few years, China’s business tycoons have been a bundle of nerves. The country’s once soaring private sector have fallen down hard in the wake of unprecedented regulatory crackdowns on Big Techs and amid calls for common prosperity. Businesses ranging from e-commerce to education to real estate have seen their stock prices pummeled and their operations under increasing scrutiny. Their already gloomy prospects have been further dimmed by China’s three-year-old draconian Covid controls which have seriously disrupted production and supply chains. Above all, political uncertainty and concerns for their own personal wellbeing have made them jumpier.

As a result, many of China’s business elites slipped away and sought temporary shelter in foreign countries. An interesting pattern has emerged as to where they have their self-imposed unusually long “holidays” or “study tours”.

Singapore has become the most favorite destination for the wealthy, where top executives or big shareholders of Chinese conglomerates including ByteDance which owns the popular apps TikTok;  Haidilao International, owner of China’s biggest hotpot chain, and Fosun International, a Chinese conglomerate, are believed either to have secured Singapore citizenship or spent a long time there.

Japan has become a favorite haunt for the Chinese billionaires including Jack Ma Yun, co-founder of e-commerce giant Alibaba Group, who is reportedly living in Tokyo.

US is another magnet where Pan Shiyi and his wife Zhang Xin, co-founders of real estate developer Soho China, have been living in New York.

Interestingly, Dubai has also become popular with Chinese tycoons, not only because of its luxury shopping and nightlife but probably because of its proximity to Qatar where the 2022 World Cup is being held.

No doubt, all of them are keeping a close watch on signals from the Chinese government on which way the wind is blowing in the wake of the Chinese Communist Party’s 20th congress in October when President Xi Jinping secured his third term as the party leader and packed the new leadership lineup with his allies with surprising ease.

An important signal came on Friday when China’s top leaders concluded a two-day closed-door annual Central Economic Work Conference to set priorities for economic development in 2023.

As the world’s second largest economy faces multiple headwinds including shrinking demand, disruption in supply chains, and weakening expectations amid resurging Covid cases at home as well as external political and economic uncertainties, leaders have promised more fiscal and financial measures to support faltering economic growth, which is well expected.

What is unexpected, however, is that the official readout signaled a remarkable change of tone towards the embattled private sector.

Compared to last year’s statement which focused on regulating wealth and preventing “barbaric” growth of capital when it came to private sector, the tone of this year’s statement is surprisingly friendly.

The readout urged strong support for private economy and private enterprises both in terms of policies and media publicity. It said that legal and institutional arrangements must be made to ensure the equal treatment of private firms and state-owned enterprises. Property rights of private firms and interests of entrepreneurs must be protected according to law, and officials at all levels should help private firms to solve their problems and do more practical work for their benefits.

More importantly, it said that greater efforts should be made to develop digital economy and support “platform enterprises” which usually refer to Big Techs such as Alibaba and Tencent Holdings, enabling them to “fully display their capabilities” in leading development, job creation and international competition.

In a nod to growing concerns about China’s private sector, the statement said officials must make public their stance and should not be ambiguous about the country’s policy of “working unswervingly to support and develop both the public sector and the non-public sector”, particularly as there have been “incorrect” discussions about whether the government would continue to support this policy.

All those remarks appear to suggest that the authorities have started to review and reflect on their previous policies including the regulatory crackdowns towards the private sector, which has sent private businessmen’s confidence to a new low and many of them into self-exile in other countries.

There is little doubt that in the coming days and weeks, China’s massive propaganda machine will ramp up business-friendly reports and commentaries as they usually do when they want the private sector to play a bigger role in bolstering economic growth.  

The change of tone is a good start but to regain the confidence of private sector, the Chinese leaders have much more to do.

Over the past decade, the government has consistently and publicly vowed to uphold the policy of working unswervingly to support and develop both the public sector and the non-public sector and giving them equal treatment.

The truth of the matter is that China’s overall private sector have taken one beating after another.

China’s regulatory clampdown on irrational growth in tech sector and its common prosperity campaign may have good intentions but the way those policies were implemented have spooked investors and raised fears about China’s future direction at home and abroad.

The consensus view is that China has shot itself in the foot by cracking down on its biggest tech companies. Despite repeated official clarifications, the common prosperity campaign has been widely interpreted as “robbing the rich to help the poor”.

The leaders may have signaled a change of tune towards private sector but the local authorities have not received the message. Over the past few days, this writer has heard complaints of mistreatment from several private businessmen and fund managers who have direct investments in the country.

One businessman who recently came to Hong Kong on way to a third country said that his businesses in multiple cities have received visits from the tax collectors who demanded them to pay back tax breaks and other subsidies the local authorities have previously given. The reason? The local authorities have run out of money because funding was diverted to mass testing and building makeshift hospitals over the past three years. The zero-Covid policy may have been dropped but their coffers have turned empty. The tax collectors were said to be polite but very firm that if the businesses did not pay promptly, they would soon launch very detailed tax audits.

This telling anecdote is just one of many challenges with which the private businessmen are grappling on a daily basis.

Broadly, to regain the confidence of private sector, Beijing must take concrete actions to honor its commitment to provide law-based protection to the property rights of private firms and interests of entrepreneurs. So far, there has been a lot of talk but little action.

For a start, the government must send a clearer signal. One such signal can be that Beijing should expedite and conclude its pro-longed investigation into and an overhaul of Ant Financial, the financial technology company controlled by Alibaba. Beijing’s decision to pull the plug on Ant’s massive initial public offering in 2020 heralded the regulatory crackdown on the overall private sector. Ending the investigation and overhaul can send a very positive message.

More importantly, China should truly expedite its process to join the high-standard economic and trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement. It is encouraging to note that the Chinese leaders reiterated its intention of “actively seeking” to join those agreements at the latest meeting. Such agreements will not only boost the confidence of private sector but also foreign investors.

The days of sweet talking are over. Actions speak louder than words. They are watching in Singapore, Tokyo, New York, and Dubai.

End.