China creates government body to support private sector

China’s government said it would create a new body to support the private sector, a move to shore up wavering confidence among entrepreneurs as a deep funk sets over the world’s second-largest economy.

China’s National Development and Reform Commission, the country’s top economic planner, said on September 4 that it would set up a bureau to coordinate policies across different government bodies and help development of the private economy, the source of most of the new jobs and economic dynamism in the country, The Wall Street Journal reports.

The new bureau will be tasked with monitoring the country’s private economy and establishing channels for regular communication with private enterprises, Zhang Shixin, a senior official at the economic planner, told a news conference. 

A cascade of policy packages since July underscored the urgency in Beijing’s efforts to boost China’s ailing private businesses and to contain systemic risks in the economy. In a bid to halt a prolonged slide in the share market, regulators have halved stamp duty—the tax charged on each stock trade—and restricted stake sales by major shareholders, prompting temporary rallies. They also relaxed restrictions on home buying and Chinese banks cut deposit rates to get the country’s reluctant consumers to unlock historically high rates of saving.

Some economists have said Beijing still hasn’t done enough to ignite an economic recovery, and that a bigger, broader package of stimulus measures is needed to restore the confidence of consumers and private-sector businesses.

Investment by China’s private sector dropped 0.5% in the first seven months of the year, widening from the 0.2% decline in the January-June period.

Unlike the recently formed National Data Bureau, which also falls under the NDRC’s umbrella, the new department announced Monday won’t hold a vice-ministerial rank, suggesting it is unlikely to be a policy heavyweight in a vast government bureaucracy that has long favoured the country’s powerful state-owned enterprises.

It is unclear whether the bureau will be able to influence the agendas of other government bodies, as they have different priorities, said Zerlina Zeng, a senior research analyst of Chinese corporate debt at CreditSights.

On its own, the new bureau “is far from enough to bring back the animal spirit,” said Larry Hu, chief China economist at Macquarie Group.

“Policymakers have to take concrete actions on two fronts: sending out stronger signals to private companies and making China’s post-Covid recovery stronger and more sustainable,” he said.

Beijing is eager to signal its shift to a more pro-business policy stance, with officials repeatedly saying that both the private and public sectors are indispensable—like the two wings of a bird. That follows a two-year-long regulatory crackdown, mostly targeting consumer internet companies, the private tutoring sector and the real-estate industry, as well as stringent measures to curb Covid-19, leading to weak investment and consumer confidence.

Beijing appears to be also trying to kick-start growth through investment, a long-favoured policy lever. Regulators in multiple provinces and regions have lowered vetting bars and offered subsidies to attract new investment.

Some local governments have also scaled back regulatory enforcement and campaigns and explored ways to establish “prudential” regulatory systems for businesses, Cong Liang, an NDRC vice chairman, said Monday.

Business executives and analysts also expected the government to continue to support private enterprises in industries deemed strategically important for the state, such as high-end manufacturing, renewable energy and agriculture. 

“The policy rhetoric of extending more support to private enterprises is encouraging, but concrete measures and a more predictable, rule-based and well-communicated regulatory framework is needed before their confidence is restored to borrow and invest,” CreditSights’ Zeng said.