[Marxism] [SUSPICIOUS MESSAGE] Private Businesses Built Modern China. Now the Government Is Pushing Back.

Louis Proyect lnp3 at panix.com
Thu Oct 4 08:45:23 MDT 2018

NY Times, Oct. 4, 2018
Private Businesses Built Modern China. Now the Government Is Pushing Back.
By Li Yuan

HONG KONG — The comments were couched in careful language, but the 
warning about China’s direction was clear.

China grew to prosperity in part by embracing market forces, said Wu 
Jinglian, the 88-year-old dean of pro-market Chinese economists, at a 
forum last month. Then he turned to the top politician in the room, Liu 
He, China’s economic czar, and said “unharmonious voices” were now 
condemning private enterprise.

“The phenomenon,” Mr. Wu said, “is worth noting.”

Mr. Wu gave rare official voice to a growing worry among Chinese 
entrepreneurs, economists and even some government officials: China may 
be stepping back from the free-market, pro-business policies that 
transformed it into the world’s No. 2 economy. For 40 years, China has 
swung between authoritarian Communist control and a freewheeling 
capitalism where almost anything could happen — and some see the 
pendulum swinging back toward the government.

State-controlled companies increasingly account for growth in industrial 
production and profits, areas where private businesses once led. China 
has stepped up regulation of online commerce, real estate and video 
games. Companies could face higher taxes and employee benefit costs. 
Some intellectuals are calling for private enterprises to be abolished 

Dissenters in China these days must walk a careful line. But a sense of 
urgency — fueled in part by China’s slowing growth and rising pressures 
from President Trump’s trade war — has driven a growing number of 
officials and economists to speak out on the government’s changing 
stance on private business.

Private enterprises are plagued by concerns and “dissatisfaction,” said 
Ma Jiantang, the top party official at the Development Research Center, 
a high-level government think tank, at the same forum, according to a 

“If a trend forms and no one dares to criticize it,” wrote Hu Deping, a 
retired minister, “the consequences will be terrible.”

The debate has gone all the way to the top. On Thursday, President Xi 
Jinping, the country’s leader, sought to reassure private entrepreneurs 
that Beijing would still support them. But he also offered a 
full-throated defense of the country’s big state-controlled companies, 
which many economists believe crowd out private businesses.

“Such statements as ‘there should be no state-owned enterprises’ and ‘we 
should have smaller-scale state-owned enterprises’ are wrong and 
slanted,” Mr. Xi said during a visit to a facility owned by China 
National Petroleum Corporation, a major state-controlled oil company.

China’s leadership turned to entrepreneurs in the late 1970s, after the 
government had led the economy to the brink of collapse. Officials gave 
them special economic zones where they could open factories with fewer 
government rules and attract foreign investors. The experiment was an 
unparalleled success. When extended to the rest of the country, it 
created a growth machine that helped make China second only to the 
United States in terms of economic heft.

Today, the private sector contributes nearly two-thirds of the country’s 
growth and nine-tenths of new jobs, according to the All-China 
Federation of Industry and Commerce, an official business group. So 
pressures on private businesses could create serious ripples.

“The private sector is experiencing great difficulties right now,” wrote 
Mr. Hu, the retired minister, who as the son of a former top Communist 
Party leader is often a voice for reform in China, in an essay posted 
online last Thursday. “We should try our best not to replicate the 
nationalization of private enterprise in the 1950s and the state 

The Chinese president, who has sought greater party control over the 
military, the media and civil society, is now focusing on business. The 
government is considering taking direct stakes in the country’s big 
internet companies. Regulators have stepped up existing requirements 
that businesses, even foreign ones, give Communist Party committees a 
greater role in management.

Leftist scholars, bloggers and government officials are providing 
theoretical and practical support. In January, Zhou Xincheng, a 
professor of Marxism at Renmin University in Beijing, declared that 
private ownership should be eliminated.

A hospital in Shanghai. China must find ways to pay for increasing 
ambitious social programs like universal health care. It is also trying 
to curb problems caused by business run amok, like pollution and years 
of companies dodging taxes.CreditGilles Sabrié for The New York Times
Last month, Wu Xiaoping, then an unknown blogger, wrote that the private 
sector should be ended now that it had accomplished its historic mission 
of achieving growth. Mr. Wu’s blog went viral.

Also last month, Qiu Xiaoping, a vice minister of human resources and 
social security, urged “democratic management” of private enterprises, 
saying that they should be jointly run by business owners and their 

Some of the government’s efforts stem from necessity. Beijing must find 
ways to pay for increasing ambitious social programs like universal 
health care. It is also trying to curb problems caused by business run 
amok, like pollution and poor treatment of workers, as well as years of 
companies dodging taxes.

But entrepreneurs say the pace of change in Chinese taxes — already 
among the world’s highest — gives them little time to prepare. For 
example, next year China will step up efforts to collect social-benefit 
payments and shift the way they are calculated, resulting in higher 
costs. Stricter social security tax collections could erode China’s 
corporate profits by 2.5 percent, according to Lu Ting, an economist at 
Nomura Securities in Hong Kong.

That could particularly hurt smaller companies, which tend to be 
privately owned and often have thin profit margins. Chinese officials 
have promised to cut overall taxes, but the details have been scant.

Beijing’s efforts to wean the economy from its dependence on borrowing 
have made it harder and more expensive for many private businesses to 
get money. At the same time, the state-owned enterprises have little 
problem getting new loans. Even Li Keqiang, China’s premier, recently 
acknowledged what he called the “hidden line” between public and private 
access to bank loans.

Some struggling entrepreneurs are doing what was once considered 
unthinkable: selling out to the state. So far this year, 46 private 
companies have agreed to sell shares to state-controlled firms, with 
more than half selling controlling stakes, according to the Shanghai 
Securities News, an official government newspaper. While the number is 
small considering the vast Chinese economy, it reverses a two-decade 
trend of state companies selling shares to private entrepreneurs.

Tech workers in Beijing in May. China has taken steps to put greater 
control over its technology sector, which flourished largely free from 
government influence.CreditGilles Sabrié for The New York Times
One was the Changchun Sinoenergy Corporation, an oil and gas company. 
Its controlling shareholders agreed to sell their stakes to a company 
run by the government of Hunan Province after a loan was called. The 
government has pledged to inject nearly $150 million into the company.

China has also taken steps to gain greater control over its technology 
sector, which flourished largely free from government influence.

Approvals of new video game titles have been frozen since a shift in 
regulation that has given the Communist Party’s propaganda department a 
direct role, an unusual degree of power over what had been a government 
process. Tencent, China’s video game giant and one of the world’s 
largest technology companies, has lost nearly one-third of its market 
value. Tencent declined to comment.

The authorities have also tightened rules governing online commerce. A 
new law requires those who run online stores to register with the 
government and pay taxes. That could hit Alibaba Group, also one of the 
world’s largest internet companies, because it runs an online bazaar, 
called Taobao, where merchants big and small have opened thousands of 
digital stores. In a statement, Alibaba said it hoped the introduction 
of the new law would bring positive development to the industry.

Against this backdrop, state-owned companies are having a good year. In 
the industrial sector, state-owned companies saw their profits grow 
three times as fast as those in the private sector in the first seven 
months of the year, according to government data. That is in part 
because government efforts to cut back on overcapacity and pollution 
have fallen largely on private factories.

Private entrepreneurs are loath to speak out for fear of attracting 
official condemnation. But signs of distress aren’t hard to find.

Last month, Chen Shouhong, the founder of an investment research firm, 
asked a group of executive M.B.A. students — many of whom already owned 
publicly listed companies — to choose between panic and anxiety to 
describe how they feel about the economy. An overwhelming majority chose 
panic, according to a transcript. Mr. Chen declined to be interviewed.

Optimists point to expressions of concern from China’s top leadership as 
an indicator that the government will give businesses more room. Others 
believe the tougher environment will stay. Xiao Han, an associate law 
professor in Beijing, cited one of Aesop's fables, of a man trying and 
failing to stop a donkey from going over a cliff.

“Before long,” Mr. Xiao said, “we’ll probably find a body of a China 
donkey under the cliff.”

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