China launches a tip-off program to support its private sector

The backstory: China's private sector has seen big changes in the past few years. The government started taking a closer look at the practices of tech companies, handing fines of over US$1 billion on industry leaders like Ant Group and Tencent for breaking different regulatory rules. This raised concerns among investors worldwide about investing in China’s private enterprises. On top of that, COVID controls and the pandemic also impacted private businesses.

So, to address the issues faced by the private sector, President Xi wanted to create a more favorable environment for the private sector and boost its expansion. But China's economic recovery has been slower than expected since pivoting away from its zero-COVID stance, with only about 1% growth in the second quarter. Beijing announced its yearly GDP growth goal was around 5% for 2023, which is on the modest end compared to previous goals.

More recently: Last month, the government released a joint statement from the party's Central Committee and the State Council. They promised to improve conditions for private businesses and treat them on par with state-owned enterprises. The statement also encouraged authorities to listen to business owners' input when making and reviewing policies. They want to ensure everyone's on the same page and helping to create a friendlier environment for private companies to thrive in the country.

The development: China is now stepping up support for these efforts to boost the private sector by launching a tip-off program for citizens. The government is asking people to report any issues that are holding back entrepreneurs – things like barriers to market entry, unfair competition, local protectionism and arbitrary fines. The State Council said on social media last week that it'll gather this information and have local officials step in to resolve issues or escalate serious cases to supervision teams. To make it even more collaborative, citizens can also offer suggestions on how to boost the private sector through the program. It’s aiming to empower citizens and boost confidence in the growth of the private sector.

Key comments:

“The private economy is a new force to promote Chinese-style modernization, an important foundation for high-quality development, and an important force to promote China’s comprehensive building of a socialist modern power,” said the joint statement from the Communist Party and the State Council.

“It seems central authorities want to leverage Chinese society to get a better sense of what is happening locally and to pressure local officials to follow their directive to support the private economy,” said Alfredo Montufar-Helu, head of the China Centre for Economics and Business at The Conference Board.

“It won’t turn sentiment around overnight, but private entrepreneurs do take these signals seriously, so this and similar statements from top leaders make a difference,” said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York. “A similar statement directly from Xi would have an even greater impact.”

“I don’t see the harsh political and business environment recently experienced by the private sector to change overnight by a few guidelines,” said Xin Sun, a senior lecturer in Chinese and East Asian Business at King’s College London.