If it were not actually happening, it would make a good joke. But it is happening. After its heavy-handed direction destroyed confidence among private businesses and sapped the growth momentum of the economy, Beijing has decided to fix the problem with a new government body to coordinate across government agencies and set priorities for businesses.
A convincing promise not to interfere would do better, but clearly, Beijing is incapable of seeing such a need, much less acting on it.
This economic reality, plus ongoing tensions between Beijing and Washington, have kept down American purchases of Chinese products as well as investment flows into China. A rise in trade with Russia cannot even begin to offset this kind of weakness. At the same time, residential real estate is in free fall. Having once dominated some 30 percent of China’s economy, most developers have fallen bankrupt, and housing prices are declining, eroding millions of Chinese people's wealth.
If this were not enough, the economy suffers from the legacy of literally years of lockdowns and quarantines imposed by Beijing’s zero-COVID policy. Beijing lifted these misguided policies earlier this year and enjoyed a brief surge in consumer spending. However, the growth was short-lived, largely restricted to the wealthiest citizens. The average Chinese person came away from those times of severe restrictions, unsure whether he or she could even count on a regular paycheck. Especially because residential real estate is the major portion of household wealth, most Chinese are reluctant to expand their consumer spending at anywhere near the pace Beijing needs to sustain overall growth rates.
Private businesses in China have suffered in much the same way as households have from zero-COVID measures. That alone would be enough to kill confidence, restrain investing, and stifle any impulse to expand, but there is more.
For some time leading up to the pandemic and during it, Chinese leader Xi Jinping and his colleagues in Beijing showed hostility to private businesses, criticizing them for following profits instead of the agenda set by the Chinese Communist Party (CCP). Mr. Xi even threatened businesses, saying that China had finally reached a level of development where it could return to its Marxist roots. As part of this stance, Beijing denied financing to Jack Ma’s retail empire, and effectively destroyed what had been a fast-growing private tutoring sector.
It is then little wonder that private businesses have held back. Even as Beijing has pushed forward with its classic use of infrastructure spending to support economic growth and the nation’s large, state-owned enterprises have increased their investment spending, private firms, large and small, have actually pulled back, cutting their capital investment outlays by 0.2 percent over the first half of the year and making even bigger cuts in July so that the first seven months of the year recorded a 0.5 percent decline.
The CCP, in response, has changed its tune. Whereas Mr. Xi denigrated private business leaders not too long ago, he has more recently referred to them as “our own people.” But as the accelerating decline in private investment spending shows, the rhetorical change is not working, at least not yet. So Beijing has decided on more substantive efforts to get private businesses to extend themselves. This is where the humor comes into the narrative.
Instead of encouraging private businesses to pursue profits and reassuring them that Beijing will not interfere, the CCP has established a new government bureau to get private businesses moving. The National Development and Reform Commission (NDRC), China’s planning agency, says that this new entity will direct the efforts of private Chinese businesses and monitor private businesses to track their cooperation and compliance. This is more of what undermined confidence in the first place. Beijing seems unable to get out of its own way.
Nor is it apparent that the new bureau, even in the unlikely event that it has great insight, will have much power to help private businesses either within the larger planning bureau or the vast Beijing bureaucracy generally. According to Zhang Shixin, senior planner at the NDRC, this new bureau will not even have a vice-ministerial rank.
Clearly, Beijing is too involved in its Marxist ideology to see that adding another bureau and another layer of government direction is not likely to inspire an enthusiastic response from private businesses. After all, it is planning and heavy-handed government direction that destroyed confidence in the first place. This latest effort is likely to fail. It is, in a way, reminiscent of another joke about misplaced top-down efforts. It goes something like this: The beatings will continue until morale improves.