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Chinese government takes measures to encourage private investment

Zhang Yue
Updated: Jun 22,2016 11:27 PM

The Chinese government will take strong measures to further unlock business potential in the private sector and encourage private investment.

Premier Li Keqiang called on local and central government departments to take concrete measures to boost the enthusiasm of private enterprises, after hearing reports from an extensive inquiry on private investment across the country, during the State Council’s executive meeting he chaired on June 22.

During the meeting, Premier Li urged government at all levels to pay attention to problems revealed during the inquiry, especially private firms’ difficulties in obtaining financing as well as excessive administrative charges.

He said that private investment is of crucial importance for China to maintain stable economic growth, secure job employment and pursue economic structural reform.

A month ago, China’s State Council initiated a nationwide fact-finding mission about private investment, covering 30 provinces and regions across China.

A third-party evaluation of the results of the inquiry was carried out by the All-China Federation of Industry and Commerce as well as research institutions, which engaged more than 500 enterprises conducting more than 10,000 surveys on private investment policies.

Major factors leading to declines in private investment growth include the country’s ongoing efforts to reduce excess capacity, insufficient policy implementation, as well as difficulty in obtaining financing for small private companies at local levels.

Premier Li said the country’s goal in nurturing new economic driving forces, developing new economy, carrying out structural reform, particularly supply-side reform, requires strong development of medium and small companies in the private sector.

“Otherwise, we will not achieve the goal we expected,” he said.

It was revealed through the inquiry that many State-level policies aimed at encouraging private investment were not fully implemented. In November 2014, the State Council published 39 policies to give well-rounded support for private investment. Yet these policies met setbacks at lower levels, and suffered from lack of policy consistency, as discovered during the recent inquiry.

Some private entrepreneurs complain that, though government has done a lot in easing institutional barriers standing in the way of entrepreneurship in recent years, they were still far from being treated equally with local SOEs, and were sometimes ruled out from market access by stringent requirements. These companies asked for a more transparent level playing field.

High cost and difficulty in obtaining finance were revealed as a major culprit in restricting private investment growth.

Premier Li said during the meeting that the key to boosting private investment is to deepen reform, and properly handle the relationship between government and the market.

“The government should fulfill their duties, but must not abuse their power,” he said.

He said that government and the private sector should maintain a friendship both close and clear, while both strictly obeying market regulations and legislation.

Further measures will be taken by the State Council to address these problems, such as improve access to credit for private companies, offer better regulation support for local PPP programs, reduce administrative costs and further expand market access for private firms.

“Stabilizing expectation on private investment and building up strong confidence in private investment is important, when China’s economic growth is slowing down,” Premier Li said.

During his visit to the People’s Bank of China on Monday, the Premier stressed that the financial sector must also support the new economy, which features integration with the Internet, innovation entrepreneurship and smart manufacturing.

Private investment has been playing a vital role in China’s economy in recent years. It has been responsible for more than 60 percent of China’s GDP, about 80 percent of the country’s jobs, more than half of tax income, as well as 67 percent of China’s outbound investment.