It looks like China is starting to regret its crackdown on private companies

Down Angle Symbol A symbol in the form of an angle pointing downwards. Chinese President Xi Jinping. Getty Images

  • China held a key meeting this week to set its economic direction for next year.
  • According to one analyst, the official report suggests “remorse” that overzealous policies have hurt economic growth.
  • China’s economy is struggling amid a housing crisis and Beijing’s crackdown on the private sector.

Since 2020, China has cracked down on private companies, including in the technology and tutoring sectors. Authorities have also cracked down on debt risks in the real estate market, leading to an industry downturn and crisis.

The speed and force of implementation, which has drained billions of dollars from the market, has unsettled investors.

Now it appears that even the Chinese government believes it has gone too far and too fast in implementing regulatory measures intended to curb risks and monopolistic behavior.

China held its annual Central Economic Work Conference (CEWC) on Monday and Tuesday. The event was attended by all of the country’s leading politicians, including President Xi Jinping and Premier Li Qiang.

A document released after the conference sets the agenda for China’s economy – the world’s second-largest economy – for next year. And remarkably, this year’s statement recognizes that China must prioritize economic development.

“Next year we must persistently strive for progress while maintaining stability, promoting stability through growth and establishing the new before destroying the old,” said the official announcement of the meeting.

The language in that document suggests “signs of remorse over the overzealous growth-negative policy implementation,” Rory Green, chief China economist at GlobalData.TS Lombard, wrote in a note on Wednesday.

“The emphasis on the economy was followed by ‘prioritizing development over addressing problems’ and rhetoric that linked national security to maintaining a stable growth rate,” Green wrote. This suggests official recognition of the country’s difficulties, he added.

The CEWC statement came after the Politburo – China’s top political leadership – made the same assessment on Friday, saying the country needed to launch new plans and policies before targeting existing problems.

This is significant because it is the first time that the Politburo has stated that new plans and policies must be established before old ones are abolished. Song Xuetao, senior macroeconomic analyst at Beijing-based TF Securities, wrote in a note last week.

It also means Beijing is likely to take a more cautious approach to implementing new measures that could destabilize markets in the short term.

Although China acknowledges that it may have gone too far in implementing its policies, the country is not changing its economic goals and is focusing on higher quality growth, security and innovation, Green said.

Market observers are also disappointed that no incentives to boost consumption were announced at the meeting.

Green, who predicts an L-shaped recovery for China, said he expects Chinese government spending in the first quarter of 2024 to stimulate the economy, but also expects that “the amount will not be enough to produce a meaningful economic acceleration.” “.

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