Abstract: This article delves into the execution of China's strategy to bolster the private economy. It underscores how the private sector fuels Chinese modernization, innovation, employment, and GDP growth. Furthermore, it emphasizes that these enterprises take the lead in consumption, ensuring steady employment and driving foreign trade, which in turn enhances innovation and industrial advancement. Finally, the article stresses the imperative of recognizing the private sector's value and fostering an enabling environment for development and calls for harnessing market dynamics and entrepreneurial endeavors to propel overall high-quality growth.
The recent publication and implementation of the "Opinions on Boosting the Growth of the Private Economy" (hereafter referred to as “Opinions”) by the Communist Party of China Central Committee and the State Council mark a significant stride towards reinforcing the private economy. The "Opinions" cogently elucidate the private economy's pivotal role in propelling Chinese modernization, its fundamental underpinning of high-quality development, and its indispensable contribution to the Second Centenary Goal of building China into a great modern socialist country in all respects. This document emblemizes the profound importance and unwavering expectations vested by the CPC Central Committee and the State Council in the private economy. In the ensuing discourse, I shall expound upon three pivotal lessons gleaned from this developmental trajectory.
1. The trajectory of private economy evolution is intrinsically linked to the realization of the goal of building China into a great modern socialist country in all respects. At the 20th CPC National Congress, a new developmental goal was set: building China into a great modern socialist country in all respects by the middle of the century. The preliminary step involves the substantive accomplishment of socialist modernization by 2035, thereby ascending to the echelons of mid-ranking developed countries. This aspiration mandates a harmonious confluence of quantity and quality in development, necessitating an all-encompassing mobilization of growth potential. Among these, the private economy emerges as a pivotal linchpin.
The private economy serves as a principal determinant of growth momentum. It has emerged as a pivotal driver of China's economic expansion. This assertion is fortified by the All-China Federation of Industry and Commerce (ACFIC) data, attesting to private enterprises' substantial contributions of 59% to corporate tax revenue, 65% to GDP, and a remarkable 92% of total enterprises in 2021. The significance of private enterprises is particularly manifest across distinct domains:
Firstly, they galvanize consumption growth as potent pioneers. Digital consumption platforms effectively bridge extensive consumer bases with suppliers, enable cost-effective and convenient transactions, and engender ongoing service innovation, thus becoming a major channel for expanding consumption.
Secondly, they play a seminal role in employment stability and transformation. Throughout 2021, private enterprises recorded a growth of 4.8% in job creation, while over 70% of enterprises exhibited stable or augmented employment rates. Especially notable was the prominent role of digital platforms in employment generation, evidenced by increasing employee numbers within large platform enterprises despite nationwide employment contractions in 2021. Numerous platforms, such as Meituan and Didi, serve as stabilizers, facilitating young individuals transitioning between jobs and providing a buffer against the psychological pressures associated with unemployment and career shifts.
Thirdly, they constitute the primary anchor of foreign trade stability. Heralding an 8.9% YoY surge in import and export activities during the initial half of the current year, private enterprises demonstrated a 6.8-percentage-point growth rate differential compared to the overall performance. This ascendancy saw the share of total import-export value burgeon to 52.7%, precipitating a 4.4-percentage-point boost in foreign trade growth. Notably, digital cross-border trade platforms have played an important role in foreign trade transformation, propelling innovation and steering foreign trade development. According to the data from the General Administration of Customs of the People’s Republic of China, cross-border e-commerce import-export volumes have registered an almost tenfold increase between 2017 and 2021, with a notable 15% surge recorded in 2021 alone.
The private economy assumes a cardinal role in nurturing quality development. Noteworthy statistics from 2022 forecast that private enterprises are poised to represent 72% of China's top 500 manufacturing enterprises. Moreover, within the photovoltaic industry, eight of the top 10 global companies are China’s private enterprises. Furthermore, 84% of the 4,300 entities of the fourth batch of "little giant" firms are private enterprises. Privately owned enterprises continue to form the bedrock of technological innovation, with China's private science and technology entities accounting for nearly half of the nation's high-tech enterprises. Substantiating these claims are figures indicating that 65% of invention patents, 70% of technological innovations, and more than 80% of new products originate from the private sector. In 2022, enterprises such as JD.com, Alibaba, Hengli Group, Amer International Group, Huawei, and Tencent occupy the top 10 positions in terms of marketing volume, epitomizing China's technological prowess on both domestic and global fronts.
Furthermore, private enterprises are spearheading novel international pathways, as evidenced by China's burgeoning export growth rate for products like electric vehicles, lithium batteries, and solar cells and modules. This burgeoning pace of expansion, characterized by growth rates surpassing 30% and sometimes exceeding 50%, underscores the private economy's dominant role in propelling the enhancement of the overall export structure.
The private economy plays a pivotal role as a substantial contributor to scientific and technological innovation. A discernible elevation in the overall innovation caliber of private enterprises has been observed, with two distinct categories of enterprises notably positioned at the vanguard of innovation. The first category encompasses innovative enterprises emerging from academic and technological institutions, thereby promoting in-depth integration and collaborative innovation of enterprises, universities, and research institutions. This convergence enhances the commercialization of scientific and technological achievements, propelling the development of pivotal core technologies across critical domains and effectively integrating them into frontline production and construction processes. The second category encompasses large-scale digital platforms, characterized by their strategic focus on market demand and application scenarios for technological innovations. These platforms facilitate the establishment of an instantaneous, online, and low-entry threshold ecosystem for the diffusion of new technologies based on a user base numbering hundreds of millions of consumers and tens of millions of corporate users. At the same time, these major enterprises possess substantial resources and wield the capacity to execute substantial investments in research and development (R&D), thereby encompassing requisite technological frameworks. The downstream application of these technological innovations, orchestrated through industrial demand, showcases a discernible lineage of development devoid of the conundrum associated with “transitions”. Presently, China's leading three entities in terms of R&D investment are exemplified by digital platform enterprises. In 2021, the average investment in R&D by major domestic digital tech companies accounted for 10%, with a maximum of 20%, which is an indicative testimony to the private enterprises' pivotal role in propelling China's digital technology innovation landscape.
2. The relationship between the private economy and wealth dynamics is multifaceted and is indisputable: the private economy first creates wealth and then possesses it. In this context, the "Opinions" endorse a prescriptive path toward fostering a sagacious understanding of the private economy's pivotal contribution and its momentous role. It also underscores imperative of assessing wealth generation within the private economy through channels characterized by legality and compliance. This foundational principle assumes a cardinal position in steering appropriate societal perceptions of the private economy. This cognitive shift is intrinsically linked to the valuation adjudications of private enterprises and entrepreneurs across diverse segments of society. Within our nation, the evolution of private entrepreneurs since the reform and opening-up delineates a unique trajectory, markedly distinct from the capital accumulation patterns observed within Western capitalist societies. This divergence is manifest in the private sector's pronounced dependence on industrious diligence and wisdom as opposed to the exploitative practices such as plunder, slave trade, and colonization associated with Western capitalist systems. Emanating from the 16th CPC National Congress is the imperative to instate a distributional framework based on the contributions of production factors, such as labor, capital, technology, and management. This strategic premise encourages the effervescent coalescence of labor, knowledge, technology, management, and capital, stimulating competitive eruptions across these elemental spheres and galvanizing an all-encompassing flow of wealth sources. The Fourth Plenary Session of the 19th Central Committee underscores the need to refine mechanisms adjudicating the valuation of production factors such as labor, capital, land, knowledge, technology, management, and data, tethering remuneration to their inherent contributions. China's institutional journey since reform and opening-up has concomitantly facilitated the transformation of individuals with limited capital into entrepreneurs capable of expeditiously engendering wealth.
Within a market economy, particularly amidst an epoch characterized by rapid scientific and technological advancements, entrepreneurs emerge as pivotal architects of the orchestration and harmonization of diverse production factors. Unlike other forms of production factors like capital, land, and equipment, which manifest as inert elements, the configuration and utilization of these elements are contingent upon entrepreneurial discernment and action. Hence, economists have accorded substantial significance to "managers" or "entrepreneurs" since Schumpeter, an elevation further augmented during the 1980s and 1990s when Chinese state-owned enterprises encountered profitability deficits despite possessing an array of production factors. Notably, the replacement of leadership or the initiation of "restructuring" underpinned substantial improvements in efficiency, accentuating the pivotal role of entrepreneurs. In contemporary market landscapes, when deciding projects, investors’ key criterion lay in assessing the core management team’s competency. These practices serve as a barometer signifying the market's “high valuation” of entrepreneurial acumen.
Entrepreneurs constitute a group characterized by their adventurous spirit and penchant for innovation, manifested through their readiness to forge "new combinations of production factors" (which encapsulates the quintessence of innovation). Venturing into nascent industries, unveiling innovative products, and pioneering novel business models, entrepreneurs encounter the heightened unpredictability associated with input and outcome dynamics. Notably, during epochs marked by accelerated technological innovation, the talent of entrepreneurs supersedes traditional ownership paradigms. Consequently, innovation-driven practices by entrepreneurs remain a cornerstone driving societal advancement.
Given the pivotal nature of such talent and practices, successful innovators stand to garner substantial wealth within relatively condensed time frames, buoyed by capital markets. This is particularly pronounced in contemporary times, where digital technologies and networks facilitate the global dissemination of innovative products and services at nominal costs, thereby capturing sizeable market shares. Foreign studies have illuminated that among the top 1% and 10% income earners in the U.S., the number of “working-class” with high stake and high income (which are actually entrepreneurs with successful business initiation and subsequent public listing) eclipses that of those relying on ancestral capital for dividend sustenance. This underscores a market-driven "wealth creation" mechanism analogous to classical capitalist societies.
3. Nurturing an enabling environment for private economy advancement necessitates a collaborative endeavor spanning multiple sectors and continuous policy support. We have a sustained policy of support for small and medium-sized enterprises (SMEs), the mainstay of which is the private enterprises. Not only are they treated equally, but they are also favoured. Not only are they accorded equitable treatment, but they also enjoy preferential policy measures. According to data from the State Taxation Administration, over the last five years, private enterprises have been the recipients of substantial tax cuts, fee waivers, rebates, and other forms of fiscal alleviation, aggregating to over 8 trillion yuan, nearly 70% of the overall relief efforts. Remarkably, around 80% of individual business proprietors within the private economy have been exempted from taxation, facilitated by a suite of supportive policies. Strikingly, nearly 80% of the national tax department's service resources are channeled towards private enterprises, with their corporate tax credit profiles serving as crucial benchmarks for financial institutions while disbursing loans, particularly catering to small and micro-enterprises. These strategies have culminated in the acquisition of 22.46 million bank loans, encompassing a cumulative value of 6.22 trillion yuan. It is imperative that forthcoming policies continue to nurture the SME landscape, perpetuating their expansion and vitality.
It is imperative to create conducive regulations and policies for, and encourage positive opinions on large private enterprises. Evidently, certain sizable private enterprises, notably those functioning as platforms, confront a dearth of confidence, inadequate levels of innovation, and attenuated developmental trajectories. Central to this imperative is the Opinion's prescription for guiding society in the judicious, accurate, and holistic recognition of the private economy and its pivotal agents. Beyond recognition of private enterprises' innovation prowess and their catalytic role in bolstering growth and employment, an evident void necessitates a solution. To this end, policy and public opinion recalibration should underscore that large-scale platform enterprises are inherently technological in nature. Noteworthy is the veritable metamorphosis of China's premier platform enterprises across multifarious domains, wherein pioneering endeavors have traversed uncharted terrain, characterized by sustained innovation within technological and business paradigms. The articulation of these enterprises as robust technological entities holds the potential to amalgamate diverse dimensions, including enterprise evolution, governance assessments, prudent adjudication of monopolistic tendencies, and the cultivation of an informed societal stance toward the expansive trajectory of these substantial platforms.
To understand the complexity of the “confidence” issue, it is difficult to avoid high competition in the digital age of and intelligence. With the fast iteration of digital technology, frequent innovation, and the emergence of new businesses and business models, high-intensity competition is inevitable, and it is the norm for innovators to fall behind and get stuck all of a sudden. Nine out of ten start-ups in traditional industries fail to survive, and the ratio is much higher for the digital intelligence industry. In 2021,152 of the world's top 500 unicorns were replaced, with a replacement rate of 30.4%. Eighty-six companies were eliminated, a 274% increase over the previous year. Even for large platforms, it's not easy to keep innovating with the times, and it's challenging to have so many key technology personnel leave for new opportunities. In short, it is a time of rapid retreat if we do not move forward quickly. The vitality of new businesses coexists with the bewilderment and powerlessness of those present. There are no institutions or policies to ensure a desirable development environment. You have to keep trying to survive and thrive.
A good business environment requires all parties to work together. The Opinions point out that all forms of ownership should enjoy equal use of factors of production, fair participation in market competition and equal protection under the law. This“equal” and“fair” business environment is important because it has a high degree of consensus and is therefore stable, credible and sustainable. Here are some key issues to address:
1. Market access inequality
Private services were doubted in some large-scale application scenarios of the digital process, and might be disqualified even after the platform has done the early work. On the premise of ensuring safety, it should be open to all kinds of enterprises equally and select the tender according to the market standard.
2. Different standards for judging competitive behavior
For example, the ruler of monopoly is only used to measure private enterprises. The regulation of such market influence should be applied equally.
3. Inconsistency among regulatory authorities.
The administrative and judicial system of China has many lines and different responsibilities, so there should be a joint force to promote development.
Meanwhile, the private enterprises, especially the platforms, should also realize that they are big enough to become high-power influencers of social order and social values, even if some of these behaviors are not intentional, guided by “monopolies” or other intentions that affect fair competition, but rather are a feature of technology-supported, massive connectivity, but there may well be consequences that affect fair competition. All aspects of society and the public have the ability and channels to know more in the digital age. Therefore, the social image of enterprises becomes more important to their own development, and a good environment requires joint forces.
This article was originally published in the “Theory Weekly” column of Beijing Daily. The views expressed herewith are the author’s own and do not represent those of CF40 or other organizations.
