China’s private firms stuck between a rock and a hard place with Beijing’s support measures ‘mere lip service’

China’s private firms are still finding themselves stuck between a rock and a hard place, with their confidence sapped due to a hostile business environment and a bleak outlook, despite scores of government supportive measures, according to a survey from an independent enterprise research institute.

Of the businesses surveyed by Beijing Dacheng, 85 per cent said China’s private sector was in a difficult situation, while only 22.5 per cent reported plans to increase investment in the next two years, according to the results published on Tuesday.

The package plan, released in July, was seen as Beijing’s strongest message ever to shore up sentiment and provide a favourable environment to China’s private sector, with a focus on economic growth, jobs and technological innovation.

But 70 per cent of the surveyed firms said the business environment in China remained unchanged or had even deteriorated after the plan was released.

“These measures have not been effectively put into place, and remained mere lip service,” the survey said.

Of the 40 surveyed firms by Beijing Dacheng, 25 said their revenues had dropped this year or remained at the same level compared to last year, while only eight reported a growth of more than 10 per cent.

For economy to flourish, China must ‘spell out, ram home’ private sector’s role

“Some entrepreneurs believe that private enterprises lack a sense of security and suggest that a number of unjust cases should be rectified, and concrete actions be taken to boost confidence and trust among private entrepreneurs,” the survey said.

The firms also added that certain government departments delay payments to private enterprises, leading to severe breaches of contract, while their lack of common sense and excessive control hinder the development of the sector.

The private economy contributes more than half of China’s tax revenues, more than 60 per cent of its gross domestic product and more than 80 per cent of its urban employment, but the sector has struggled to recover this year.

The volatile relationship between China and the United States looms as the biggest uncertainty haunting the business outlook, the survey said.

The sense of insecurity stemming from China’s legal environment, a lack of integrity and spirit of contract in certain government departments, as well as inadequate government support and encouragement for private enterprises, were also listed.

Strict differentiation of private and public companies should be abolished to circumvent discrimination, Liu Shijin, former deputy director of the Development Research Centre of the State Council, said on Monday according to state media.

“Categorising enterprises based on the ownership of capital to determine their nature has increasingly distanced itself from the actual market and business conditions,” Liu said.

“It is crucial to place entrepreneurial talent and spirit at the forefront in order to enhance vitality, competitiveness and innovation capabilities of enterprises.

“There is a need for corresponding adjustments in enterprise classification, moving away from the distinction between state-owned and private enterprises, and instead categorising them based on factors such as size, technology and employment characteristics.”