{"id":45018,"date":"2023-08-06T01:10:36","date_gmt":"2023-08-06T05:10:36","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/chinas-private-sector-is-losing-ground-the-state-is-gobbling-market-share\/"},"modified":"2023-08-06T01:10:38","modified_gmt":"2023-08-06T05:10:38","slug":"chinas-private-sector-is-losing-ground-the-state-is-gobbling-market-share","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=45018","title":{"rendered":"China’s Private Sector Is Losing Ground. The State Is Gobbling Market Share."},"content":{"rendered":"

As China\u2019s economy cools into a new normal of slower growth, its track record is taking on a particular shape\u2014a long expansion culminating in a peak before beginning a downward slope.<\/p>\n

Other areas of China\u2019s development are assuming this same form: birth and marriage rates, growth in home sales and prices, youth employment, and the population as a whole.<\/p>\n

\n

It\u2019s easy to pass these off as natural outcomes of a society attaining a certain level of affluence. Wealthier countries produce fewer babies, for instance, and their economies temper into single-digit growth.<\/p>\n

Yet another metric has taken on this familiar shape despite precedent among maturing economies. Private companies, which enjoyed a 40-year explosion as a proportion of China\u2019s economy, are now ceding market share to the dinosaurs of state enterprises.<\/p>\n

\u201cThe continuous decline of the private-sector share among China\u2019s largest companies over four semesters in a row through mid-2023 does not support optimism about the future dynamism of China\u2019s economy,\u201d wrote Tianlei Huang and Nicolas Veron of the Peterson Institute for International Economics.<\/p>\n

Among the 100 largest listed companies, measured by market capitalization, the share of companies that are majority-owned by the Chinese state rose to 61% from 57.2% in the first half of 2023, according to the institute. The share of the private sector, defined as firms with less than 10% state ownership, in the same period dropped below 40% for the first time since the end of 2019. <\/p>\n

Last year, even while anti-Covid policies nearly froze China\u2019s economic activity, private investment growth remained positive. But in the first half of this year, when everyone expected a vibrant rebound of consumption and innovation, private-led fixed asset investment fell 0.2% compared with the same period last year.<\/p>\n

\u201cAt a time when there are no restrictions on movement anymore, an outright contraction in private investment raises serious concerns on the vitality of private enterprises,\u201d Huang told Barron\u2019s<\/em>.<\/p>\n

A survey by one of China\u2019s leading business schools found that entrepreneurs of small and medium enterprises are worried about a range of issues. But investor confidence, reluctant consumers, and paltry government assistance seem to be at the core of the matter.<\/p>\n

Government promises to revive the private sector have been a top theme since Covid restrictions were dropped in January. But actual policies haven\u2019t helped, some business managers told Barron\u2019s<\/em>.<\/p>\n

Xiao Fan, manager of upscale whiskey bar Still Fun in the metropolis of Chengdu, told Barron\u2019s <\/em>that revenue remains 30% below its prepandemic level. As for profit, he called it \u201cmeager,\u201d and added that \u201cmy salary has been cut roughly the same amount.\u201d <\/p>\n

Spurring consumer spending with cash transfers or increased confidence would boost private businesses, experts say. But policy makers don\u2019t seem to understand, or don\u2019t have the will power, to adequately address the problem.<\/p>\n

Last week, officials at a press conference for the State Council\u2014China\u2019s cabinet\u2014cited weak demand as stemming from product safety concerns, problems with logistics networks, underdeveloped sales channels, and a dearth of \u201cniche\u201d products. The deputy director of China\u2019s national economic planning agency cited a lack of \u201celderly-friendly smartphones\u201d as a consumption impediment.<\/p>\n

\u201cNo, no, no,\u201d consultancy Trivium, which analyzes the Chinese economy, said of these diagnoses. \u201cConsumers aren\u2019t spending because income growth has slowed and the economic outlook remains uncertain,\u201d the group\u2019s analysts wrote on Tuesday.<\/p>\n

Others agreed. \u201cDespite years of promises, Beijing has never implemented meaningful demand-side stimulus. The Party frequently talks the talk, but in the end just keeps going back to the well with supply-side measures,\u201d Leland Miller, CEO of consultancy China Beige Book, told Barron\u2019s<\/em>.<\/p>\n

In a country reluctant to criticize the government, citizens and private businesspeople have taken to mocking the perceived paltry measures at boosting consumption and reviving the private sector.<\/p>\n

One policy measure included tax breaks for small and medium firms. \u201cThe tax payable has dropped from 3% to 1%, and the government has issued consumer coupons to stimulate consumption,\u201d said Fan, from the Chengdu bar. \u201cBut it doesn\u2019t help us at all.\u201d<\/p>\n

Peterson\u2019s Huang said his team first surmised that the shrinking share of the private sector was caused by a decline in internet platforms. But they found the sector\u2019s market capitalization has actually grown since 2021.<\/p>\n

\u201cThis means the relative decline of the private sector is now broad based in terms of industry, instead of being concentrated on platforms. In other words, without the somewhat recovery of internet platforms, the drop in the private sector reflected in our latest update would be even more visible. This is of course worrying,\u201d he said.<\/p>\n

Write to editors@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

As China\u2019s economy cools into a new normal of slower growth, its track record is taking on a particular shape\u2014a long expansion culminating in a peak before beginning a downward slope. Other areas of China\u2019s development are assuming this same form: birth and marriage rates, growth in home sales and prices, youth employment, and the […]<\/p>\n","protected":false},"author":1,"featured_media":45019,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-45018","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nChina's Private Sector Is Losing Ground. 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