Reconsidering the Private-Enterprise Crackdown: Signs of Chinese Regret Emerging

Since 2020, China has actively tightened its control over private enterprise, notably in sectors like technology and tutoring. Alongside this, measures to mitigate debt risks in the real estate realm have led to a downturn, triggering a crisis within the industry.
Investors reacted strongly to the swift and forceful enforcement of these policies, causing a substantial decline in market value, erasing billions of dollars.
Recent indications suggest even the Chinese government believes it may have acted too swiftly and aggressively in implementing regulations aimed at curbing risks and monopolistic tendencies.
During the annual Central Economic Work Conference (CEWC), attended by top leaders like President Xi Jinping and Premier Li Qiang, a released document outlined the economic agenda for the upcoming year. Notably, this year’s statement acknowledges the necessity of prioritizing economic development.
The language used in the document hints at a reevaluation of overly aggressive policies that might have dampened growth, according to Rory Green, the chief China economist at GlobalData.TS Lombard.
The emphasis on economic growth was coupled with a focus on ‘prioritizing development before tackling problems,’ with a clear link established between national security and maintaining a stable growth rate. This indicates an official acknowledgment of the challenges faced by the country, Green added.
This recent CEWC statement aligns with the assessment made by the Politburo last week, suggesting the need to establish new plans and policies before dismantling existing ones. This shift signifies a significant change in approach, as noted by Song Xuetao, the chief macroeconomic analyst with Beijing-based TF Securities.
It indicates a probable shift towards a more cautious implementation of new policies, aiming to avoid short-term market destabilization.
Although China admits potential overreach in policy implementation, it remains steadfast in its economic goals, concentrating on higher quality growth, increased security, and fostering innovation, according to Green.
However, the meeting did not announce stimulus measures to bolster consumption, disappointing market observers. Green anticipates government spending in early 2024 to aid the economy, but believes it may not be sufficient for substantial economic acceleration.
In summary, China’s recent acknowledgment of potential policy overreach hints at a more measured approach, prioritizing stability and new policy formulation, while maintaining a commitment to long-term economic objectives.

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