China’s third plenum pledges to support ‘capable’ private sector to lead technological innovation

The document also sets out a wide range of reform goals for the next five years in areas such as economic development, science and technology, human capital, defence, social security and ideology.

“It seems to be about how to unite private enterprises to take on strategic national tasks,” said Su Yue, chief China economist at the Economist Intelligence Unit.

“There is little content about the private sector this year.”

The Third Plenum also supported the formulation of a law aimed at supporting the private economy.

“We believe China can speed up the legislative process of the Private Economy Support Act and help establish a unified and fair domestic market, which should help bolster investor confidence,” said Ning Zhang, senior China economist at UBS Investment Bank.

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Chinese Communist Party Ends Policy Meeting Amid Growing Uncertainty

Chinese Communist Party Ends Policy Meeting Amid Growing Uncertainty

The private sector is the backbone of the Chinese economy, accounting for 50 percent of tax revenue, over 60 percent of gross domestic product and over 70 percent of technological innovation.

It provides over 80 percent of jobs in cities and brings together over 90 percent of market entities.

“The central government certainly wants to stabilize confidence in the private economy and will definitely implement appropriate policies, but the current international situation is not good,” Su said.

“These two factors may neutralize each other, so the effect appears to be very limited.”

From Beijing’s point of view, in addition to increasing the trust of private enterprises, maintaining national security is also a priority, she added.

Regarding the public sector, the plenum promised support to make it “stronger, better and bigger” and strengthen its basic functions and competitiveness.

According to the full text of the document, China intends to promote the concentration of state capital in important industries related to national security and the backbone of the national economy, including public services, emergency response capacity, social welfare fields and future strategic emerging industries.

Julian Evans-Pritchard, head of China economics at Capital Economics, said the third plenum suggested Beijing would continue to support an industrial policy that directed resources to favoured sectors such as high-tech manufacturing.

“One reason leaders seem to be sticking to their guns on industrial policy is that their goals are not purely economic. National security concerns are increasingly influencing policymaking, and the communiqué from the third plenum suggests that this is likely to remain the case in the future,” he said.

The problem, however, is that there is no guarantee that industrial policy will lead to a more productive allocation of resources, Evans-Pritchard added.

“At a macroeconomic level, industrial policy is likely to do more harm than good by deepening supply-demand imbalances, deflationary pressures and financial stress,” he said.

Maximilian Butek, executive director and board member of the German Chamber of Commerce in East China, said low market confidence and uncertain private sector investment pose challenges for German companies in China.

“China’s leaders want more economic growth and know there is no other way to avoid opening up markets. But this opening contradicts the party’s desire for more control. The Third Plenum did not help resolve this contradiction, but rather exacerbated it,” Butek said.

“An economic policy focused on the whole country is problematic for German companies because it could push them even further to the sidelines.”