Communist China Discovers Capitalism, Again

Written by Chriss W. Street

China President Xi Jinping rediscovered capitalism last month by assembling China’s top corporate leaders in Beijing for the first time since 2018. Facing a debt crisis, the Communist Party must now beg for the private sector to boost technological innovation and economic growth.

Beijing has provided little financial support and imposed harsh regulatory crackdowns on the private sector since Trump 45 began hitting China hard with tariffs in 2018. With the CCP having failed to revive growth of state owned enterprises, President Xi trying to reinvent himself as pro-business.

The Communist Party had been ratcheting up socialist control over most aspects of China’s political and economic activities. But the group assembled at last month’s business forum included top tech CEOs fromXiaomi, Tencent and Huawei Technologies, and all-electric carmaker BYD.

Alibaba founder Jack Ma who was “disappeared” from public life 3 years ago, was strategically centered in the front row for the commemorative picture. The evening news featuring President Xi and Ma smiling and shaking hands, would have been considered as unthinkable.

Ma disappeared from Chinese public life in 2020following his harsh criticism of the “lack of innovation” in Chinese industry and financial services. Ma was allowed to move to Japan in 2022, at about the peak of the Chinese government Big Tech crackdown that targeted many of China’s most prominent technology companies and entrepreneurs.

With local governments under financial strain in 2020, Beijing empowered to use various means to boost their finances by extracting resources from private enterprises. Many companies were hit with criminal investigations and hammered with huge fines and asset confiscations under the Communist Party’s initiatives for “common prosperity.”

But the significance of China’s private sector is undeniable. The China State Administration for Market Regulation reported last May that of the 180.45 million in China, 96.4 percent are in the privately sector, with 55.18 million private businesses 125.27 million were self-employed individuals.

More importantly, private businesses account for more than 90 percent of the country’s high-tech, scientific research and manufacturing sectors. Despite massive state-owned-industry subsidization, over 60 percent of China’s gross domestic product, 50 percent of foreign trade and more than 80 percent of urban employmentcomes from the private sector.

China’s real estate and banking sectors are approaching depression levels. As a result, local government debt and youth unemployment have spiked. In desperation, the central government has warmed up to the private sector in hopes that renewable energy, artificial intelligence and strategic sectors can restart growth.

After years of investigations of large enterprises, like ride-hailing platform Didi and e-finance giant Ant Group, as exercising monopoly behavior, the Chinese central authorities began monitoring local authorities to ensure they did not confiscate funds intended for private enterprises.

The Chinese Communist Party (CCP) in the 1990s started systematically integrating the growing and increasingly vital private sector into the nation’s political establishment. CEOs were given political roles and forced to join the Chinese People’s Political Consultative Conference.

The central government launched the Corporate Social Credit System in 2014, which allowed the Communist Party to place companies on blacklists if they were deemed not loyal enough to the party and restrict their freedom of operation and market access.

As a result, Chinese private companies have not really been “private,” with the central government being deeply infused into all areas of operations.

These requirement intensified under Xi in 2017. The Chinese Communist Party (CCP) adopted the National Intelligence Law, which requires all firms in China to provide information and data to authorities when asked in the interest of national security. The CCP also formed official party units within companies that conducted regular internal monitoring, ranking firms and employees according to their Communist Party loyalty.

But this may be changing, as President Xi turns to the people his government once targeted to lead a much-needed economic rebound. In addition to publicly meeting with business leaders last month, his government unveiled targeted measures that would ban provincial authorities from imposing fines on private businesses without a legal basis.

The moves are an admission that the nation facing an existential crisis must ensure that private sector enterprises have genuine autonomy in their operations and business decisions.