China Ramps Up Control "No Choice But To Follow The Party"

China is taking over the private sector to maintain its growth targets.

"No Choice But to Follow the Party"

The Wall Street Journal reports China’s Xi Ramps Up Control of Private Sector. ‘We Have No Choice but to Follow the Party.’

Xi Jinping, long distrustful of the private sector, is moving assertively to bring it to heel.

China’s most powerful leader in a generation wants even greater state control in the world’s second-largest economy, with private firms of all sizes expected to fall in line. The government is installing more Communist Party officials inside private firms, starving some of credit and demanding executives tailor their businesses to achieve state goals. 

In some cases, it is taking charge entirely of companies it regards as undisciplined, absorbing them into state-owned enterprises.

The message isn’t lost on entrepreneurs, who are reorienting their businesses to appease the state or giving up on private enterprise altogether.

For us small businesses, we have no choice but to follow the party,” says Li Jun, a 50-year-old owner of a fish-farming business in the eastern Jiangsu province. “Even so, we’re not benefiting at all from government policies.”

The article noted how Mr. Xi personally intervened to block the $34 billion initial public offering of one of China’s biggest private firms, Ant Group.

That led to the "no choice" observation by Li Jun, the owner of a fish-farming business.

Michael Pettis Comments

  1. Good article by @Lingling_Wei on how state control of the Chinese economy has increased in recent years in spite of assurances that Beijing wants to maintain the role of the private sector. 
  2. While part of this trend may indeed be explained by a deepening conviction within the country’s leadership that markets and private entrepreneurs are unpredictable and not to be fully trusted, as Wei suggests, I would argue that it is also a necessary function of this stage of China’s growth model.
  3. This is something I've often argued would happen, and was the point I made in an article I wrote for the FT in April. As long as Beijing requires growth rates that are substantially higher than the economy’s real, underlying growth rate, ...
  4.  I said in the article, China has no choice but to expand the state’s presence in the economy. If the healthiest sources of demand – consumption, exports and private-sector investment – are together unable to generate the level of growth that Beijing considers to be politically necessary, ...
  5. only an expansion of the public sector can achieve the GDP growth rate that Beijing has targeted. This is something we saw most obviously this year, when, thanks to the effects of the pandemic, private-sector demand actually contracted, leaving an expansion. ...
  6. of the public sector to account for more than 100% of growth. Next year I expect we'll see the private sector maintain its share of the economy as a partial rebound of private demand delivers all or most of the implicit GDP growth target, but thereafter I expect we will...
  7. revert to a rising state sector presence. Without a serious rebalancing of demand, in other words, as long as Beijing targets GDP growth of 3-4% or more, the state share of the economy, and of loans, must expand. There is no other way to achieve the growth target.
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