Chinese President Xi Jinping finally appears to be extending an olive branch to private businesses battered in recent years by regulatory crackdowns and the world’s most restrictive COVID-19 policies.
Officials have made a series of high-profile actions designed to telegraph the Chinese government’s backing for private companies, as the nation’s post-pandemic recovery risks being caught in a confidence trap. The Chinese leader has vowed to treat foreign investors better and called for greater opening up in recent weeks.
That mission has seen top officials roll out the red carpet for Elon Musk and other executives, draw a line under a tech crackdown that tanked the world’s biggest IPO, and even visit U.S.-based Bain & Company’s Shanghai office in an apparent end to immediate worries about a probe into consultancies that spooked global investors.
The positive moves in the technology sector spurred a 3.8% jump on Thursday in the Hang Seng Tech Index, which is now on track for its best week this year.
China’s outreach comes as the nation’s post-pandemic recovery loses steam. The nation’s property market is showing signs of weakness, exports are shrinking and deflationary risks loom. Without “the lure of a rapidly growing economy,” China’s is finding it difficult to attract Western business, said Diana Choyleva, chief economist at Enodo Economics, a London-based research company focused on China.
“Deflationary signs add to the impression of a troubled economy, making it harder for Beijing to recruit foreign capital to its efforts to counter U.S. power,” she added.
Perhaps China’s clearest signal of a shift in attitude toward the private sector was the praise heaped this week on tech companies, which have seen billions in market value wiped out because of Xi’s regulatory crackdown.
Chinese Premier Li Qiang called Internet companies the “trailblazers of the era” in a meeting on Wednesday with senior executives from Alibaba Group Holding Ltd. and ByteDance Ltd. Meanwhile, the nation’s top economic planning agency praised major online platforms for supporting the nation’s technological innovation.
These gestures imply authorities now want to help create more jobs, bolster the real economy and drive the country’s competitive edge internationally, said Willer Chen, an analyst at Forsyth Barr Asia.
China has already removed one major barrier to international business exchanges: COVID-19 controls that closed borders for three years. Members of China’s powerful Politburo met with Musk and Jamie Dimon, chief executive officer of JPMorgan Chase & Co., in May, signaling that the return of such executives is welcome.
Business delegations from Japan and France have also visited this year, while the chief executive officers of Intel Corp. and Mastercard Inc., as well as senior representatives from Western Digital Corp. and Qualcomm Inc., are in China this week, according to an agenda seen by Bloomberg News.
Xi himself greeted U.S. billionaire Bill Gates in Beijing last month calling him “the first American friend I’ve met in Beijing this year.” That warm message contrasted with the tougher meetings the Chinese leader and other officials had with U.S. Secretary of State Antony Blinken days later.
The world’s largest economies are locked in a trade war that’s seen both sides impose export controls. A survey by the American Chamber of Commerce in China earlier this year found that the Asian giant is no longer a top three investment priority for a majority of US firms, as geopolitical tensions simmer.
There are some early signs frictions are easing. U.S. Treasury Secretary Janet Yellen said her meetings with Chinese officials in Beijing last week had put ties on a “surer footing.” Still, Yellen told her counterparts in Beijing that “coercive” and “punitive” actions against U.S. companies in China were a major concern for businesses.
Earlier this year, China conducted a series of raids on consultancy companies relied on by foreign investors. U.S. consultancy Bain & Company said this week it had “warmly” welcomed a visit by top Shanghai officials days before Yellen’s trip. That marked officials’ first known visit to the firm since a wider probe of the industry over national security concerns.
Despite China’s efforts Alicia Garcia Herrero, chief Asia Pacific economist at Natixis, said private sector “confidence has clearly not been restored.” She identified three main lingering problems: muted domestic demand, tighter national security regulations and the U.S. and European Union stepping up exports controls to China.
“Being present in China is becoming a liability – rather than an asset – as far as global investors’ reactions are concerned,” she added.
Tian Xuan, a Tsinghua University professor, said the government should formulate red lines so companies can operate with confidence in a frontpage article Wednesday in the state-run Securities Times.
Distilling what was at stake for Xi’s government, Tian said: “What is the most important problem in the private economy now? It’s the lack of confidence among private entrepreneurs.”
( Rebecca Choong Wilkins, Colum Murphy, Charlotte Yang and Lucille Liu contributed.)