Consensus on economic recovery injects confidence into China's market
By Tao Xing  ·  2023-01-04  ·   Source: NO.2 JANUARY 12, 2023


People visit a shopping complex in Guangzhou, Guangdong Province, on January 1 (XINHUA) 

Upon hearing the news that China was to ease its COVID-19 restrictions in early December, Xie Dongfang heaved a sigh of relief. "The time has now come to reactivate my business plan," Xie, founder of Shanghai-based scented candle brand ECOLIT, told Beijing Review.

Last year was difficult for Xie. "The candles and their packaging are produced by different factories in Shandong, Jiangsu, Zhejiang and Guangdong provinces and the repeated COVID-19 flareups and the ensuing control measures strongly influenced both production and logistics," he said, adding that the months-long lockdown in Shanghai in the first half of 2022 sank his business into stagnation, in turn forcing him to surrender the tenancy agreement with a warehouse stockpiling his goods.

China's virus containment efforts did show outstanding advantages in stabilizing the economy in the first two years of the pandemic. It was the only major economy in the world to achieve growth in 2020, with its GDP expanding 2.2 percent. Its 8.4-percent economic expansion in 2021 was also among the fastest worldwide.

However, 2022 was a year dominated by the highly transmissible Omicron variant and saw repeated lockdowns in many regions. These led to the severe disruption of supply and industrial chains, which increased the difficulty in balancing the country's COVID-19 control response and economic development. A gloomy global situation, marked by geopolitical conflicts, chaos in the energy market and a struggle to control inflation, didn't help matters either.

"The pandemic-led economic uncertainty and disputes about the country's COVID-19 response policy and some other issues have influenced the confidence of market entities," Zhang Yansheng, principal researcher with the China Center for International Economic Exchanges, told Beijing Review.

To try and turn the tide, China has rolled out a string of adjusted measures since last November to better align anti-COVID efforts with economic and social development.

China's economic performance is expected to accomplish an overall recovery over the next 12 months and that firm confidence is necessary to do a good job at economic undertakings, according to the annual Central Economic Work Conference in mid-December 2022, which outlined the national economic priorities for the upcoming year.

Law-based governance 

The uncertainty and pessimism about the economy stem from misinterpretations of China's development path, for example, whether the country will continue to deepen reform and opening up and develop the private sector, Zhang said.

For example, some misunderstood the pursuit of common prosperity, saying it intends to "rob the rich to give to the poor." But the goal of common prosperity, which President Xi Jinping said is a key feature of China's modernization, is in fact to "bake a bigger pie" of social wealth by developing the economy, so that everyone in the country can get a bigger slice.

Currently, the private sector contributes about 50 percent of China's tax revenue, 60 percent of the country's GDP, 70 percent of its technological innovation outcomes and 80 percent of urban employment. China will consolidate and develop the public sector of the economy as well as encourage, support and guide the development of the private sector, the Central Economic Work Conference said.

The meeting underlined the importance of legal and institutional arrangements to guarantee the equal treatment of state-owned and non-state-owned enterprises. The property rights of private businesses and the interests of entrepreneurs will receive law-based protection, it further stated.

"The central authorities have addressed misunderstandings affecting the public's confidence in economic growth many times," Zhang said. "It is normal to have different views and legal guarantees are essential when addressing any related arguments."

Palpable pros 

China's registered market entities totaled 161 million by late June 2022, up 4.4 percent from 2021, indicating a sustained economic vitality. Among them, 50.39 million were businesses and 107.94 million were self-employed individuals, according to the State Administration for Market Regulation. Those businesses are mostly privately held small and medium-sized enterprises (SMEs).

Policies on tax breaks and financial support have been implemented to support SMEs in recent years in response to the impact of COVID-19. For example, in 2022, China deferred tax payments for micro, small and medium-sized enterprises to offset the impact of rising costs.

Chen Gang, who owns a company that manufactures alloy materials in Bowang District of Maanshan City, Anhui Province, said his factory has benefited from the tax deferrals. Moreover, six companies in the district received low-interest loans, with the recipient of the largest lending volume receiving 80 million yuan ($11.58 million) in the past two months, he said, adding his uncle was one of them and secured a 30-million-yuan ($4.34-million) loan. "It will help them better develop their business," Chen told Beijing Review.

Xie also hopes to receive a low-interest or interest-free loan to expand production, but as of yet hasn't been able to secure one.

"It is essential we ensure these entities receive tangible benefits," Xu Hongcai, Deputy Director of the Economic Policy Commission at the China Association of Policy Science, told Beijing Review in a November 2022 interview. "For example, in addressing the financing needs of SMEs, we need to develop inclusive financing and offer a range of supporting mechanisms and methods." Inclusive finance refers to the principle of expanding access to affordable financial services to all individuals and businesses, especially to low-income households, rural residents and micro and small businesses. The United Nations began using this definition in 2006.

The self-employed individuals in cities, too, need attention. "Sometimes, a roadside stand is the main source of income for a family; plus, residents also need the convenience of having different food supplies nearby," Zhang said. He suggests the authorities designate certain public areas for residents to engage in business activities such as setting up stalls and selling self-produced agricultural and sideline products.

Last November, a new national regulation on advancing the development of self-employed businesses took effect, pledging more support to those in difficulty.

Coming to a consensus 

"It's important to give full play to the power of the Chinese people," Zhang pointed out. "Their strong aspiration for a better life is an essential drive toward social and economic development. Just think of all those Chinese parents working hard, even if only relying on the income of a roadside stand, to be able to send their children to university."

China needs to expand the middle-income population and meet people's basic housing needs, according to Zhang. Families with an annual disposable income of 100,000-500,000 yuan ($14,359-71,839) are considered middle-income earners in China. "Once their income and housing worries have been addressed, residents will be more willing to consume, which in turn will promote the development of market entities," he explained.

The people's need for improved housing conditions should be met, while a long-term rental housing market is to be explored. Sticking to the principle that "houses are for people to live in, not for speculation," the country now intends to promote a smooth transition of the real estate industry to new development models, according to the annual conference.

"Although we are still experiencing a surge in Omicron infections [sweeping across China since early December 2022], resulting in less foot traffic in, for example, shopping malls, I'm confident about the upcoming 12 months," Xie said, adding that once foot traffic flows the market will come alive.

Chen echoed Xie's optimism. "Maybe we need some time to recover from the current wave of COVID-19 infections in the coming months, but I do believe society's energy will be fully unleashed starting from the second half of this year," he said.

"Business will be alive and kicking once again," both Xie and Chen concluded.

Copyedited by Elsbeth van Paridon  

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