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Does the Private Sector Matter to Xi’s Foreign Economic Policy?

Tecno store in Nairobi, Kenya. Photo by Cliff Mboya/CGSP.

Elisa Gambino, Global Development Institute

On Monday, Xi Jinping visited national political advisors from the China National Democratic Construction Association and the All-China Federation of Industry and Commerce who are attending the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) currently underway. At the meeting, he directly addressed the challenges posed by U.S.-China tensions, highlighting the role the private sector can play in overcoming them.

The pressure caused by the introduction of sweeping export control measures by the US – aimed to curtail Chinese access to chips crucial to advanced technology – is clearly being felt across different supply chains. Interestingly, Chinese leaders appear now to be turning to both state- and privately-owned companies for solutions.

Last week, Vice Premier Liu He remarked the private sector should make the most of the new resources allocated to supporting technological innovation domestically. This is part of a broad set of incentives promoted by the Chinese government in the context of rising U.S.-China competition for access to advanced semiconductor technology.

China’s private sector has grown exponentially since the mid-1990s when private companies were granted formal legal basis ahead of the constitutional amendment of 1999, in which companies were acknowledged as an important component of the Chinese economy.

Under Xi Jinping’s rule, the number of Chinese private companies has gone from around 10 million in 2012 to 44 million in 2021. However, the share of investment by private firms decreased relative to that of state companies, and, in 2022, China’s National Bureau of Statistics highlighted that private investment grew by 0.9% compared to a 10% increase in state investment.

A lively debate has ensued. On the one hand, acknowledgment of the role of the private sector – which accounts for over 50% of tax revenues, over 60% of total GDP, over 80% of urban labor employment, and over 70% of total technological innovation – by Chinese leadership is a welcome departure from favoring of state enterprises.

On the other hand, after the CPC called on the private sector to focus its efforts on national rejuvenation, some observers believe that the CPC is moving towards extending the Party’s influence within the private sector, or, at least, doing so more overtly.

Since late 2020, the private sector in China has also faced unprecedented challenges in the form of a regulatory crackdown, especially in the fintech and technology sectors. The IPO of fintech giant Ant Financials, whose major shareholder is Jack Ma, founder of Alibaba, was paused; giant ByteDance, the owner of TikTok, was required to have a government-appointed board member in their Chinese subsidiary; Didi, a large ride-hailing service which, in 2016, had bought Uber’s China operations, was stopped from registering new users for 18 months.

At the beginning of 2023, pressure on the private sector from regulators began to ease, but questions remain about what the relationship between the state and the private sector will look like in the future.

Over the course of the past week, the Chinese private sector has featured prominently in Chinese politics. As the “two sessions”, the parallel CPPCC and National People’s Congress (NPC) meetings, take place this week, remarks on the private sectors should be a key space to watch. Further incentives to consolidate businesses and seek new markets have the potential to bring the Chinese private sector’s engagement with economies in the Global South to the forefront.

Debates on China-Global south engagement are usually dominated by discussions on large-scale state-backed companies. But Chinese small and medium-sized private companies are already seemingly ubiquitous in many countries in the Global South. For example, a 2017 McKinsey report estimated that around 90% of Chinese companies operating on the African continent are privately owned.

As Chinese privately-owned businesses are increasingly connected to the political, economic, and social lives of Global South countries, it will become even more important to understand how they relate to decision-making bodies in China and to their state-owned counterparts.

Dr. Elisa Gambino is a Lecturer in Global Development – Global Political Economy at the Global Development Institute, University of Manchester. Follow Dr. Gambino on Twitter @drelisagambino.

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