China’s recent pivot to business-friendly language only muddies its approach to pursuing economic growth, and this tactic will not be effective in achieving the desired goal. In an effort to pull ahead in the race to be the world’s largest economy, China is working to gain trust back from foreign investors and businesses. At the same time, this change has also enacted an unsuccessful attempt to smooth out domestic issues. Until China’s approach and language align with each other, they will not be able to see the results they want.
Despite being the world’s second-largest economy, the years leading to China’s rise were never bolstered by business-friendly jargon – a completely different approach compared to the world’s first largest economy, the United States. The bulk of China’s economic power stems from its state-owned enterprises. In “The role of China's state-owned companies explained” from the World Economic Forum, the article states that of the 109 Chinese corporations listed on the Fortune Global 500, an overwhelming 85% of them are government-owned. This has resulted in significant inflexibility when China attempts to follow market demands, and has acted as an overall deadweight for the country’s chase after economic growth. Adding onto this hindrance has been the three-year-long shutdown inflicted by the coronavirus. NPR article “With COVID lockdowns lifted, China says it's back in business. But it's not so easy” shares that at the beginning of 2023, reportedly only 3% economic growth in 2022 was achieved. This reigns in as the second-lowest percentage the country has seen in at least forty years. These issues have served as motivation for China to begin adhering to more western economic ideologies, albeit prioritizing the goals of the Chinese Communist Party in the past.
It can be argued that China’s pivot in language is genuine and that the conditions have become dire enough for the Chinese government to carry out these proposed pro-business actions. Indeed, according to The New York Times article “From Disciplinarian to Cheerleader: Why China Is Changing Its Tone on Business”, China has begun some action, including the announcement of relaxing government oversight of technology companies and reducing restrictions on heavy borrowing by property developers. However, the provided and proposed measures from China are not enough to keep foreign businesses and investors from exploring alternative options. Overall, the main outcomes foreign investors want to see from the Chinese government are equal access in technology and other industrial sectors for private and foreign firms and reduced tariffs on imports. There is a clear lack of trust in the government, from the skepticism of the reported 3% of economic growth to seeing only a change in language, rather than approach. Inconsistency is a large contributing factor to China’s struggle to achieve economic growth. These underlying tensions between foreign businesses and the Chinese government are difficult to resolve, and many have started looking for new locations, such as Vietnam and Cambodia.
Another component of China’s fight for economic growth lies in the behavior of its domestic consumers. The world economy is weaker than before, resulting in underwhelming demand for exports. Thus, China needs to put some emphasis on domestic consumer spending amidst the scramble to retain foreign businesses and investors. The New York Times article presents the issue with China’s housing market. Recognizing the dying real estate market, the government has removed many debt restrictions and taken measures to make borrowing easier for developers trying to finish apartments. These approaches fail to address the true issue: lack of interest from domestic consumers. This concern extends to other markets, since Chinese consumers are risk-averse and cautious of turbulence in health policy and the reopening of the economy. Compared to other countries, consumer recovery is expected to take much longer for Chinese consumers.
Some would say that there may still be some pent-up demand from consumers following COVID. Many consumers moved their incomes into savings, and do indeed have more to spend now. In spite of that, most of these consumers have slightly diminished incomes, which makes it difficult for domestic spending to be as impactful without other factors. Adding onto this, the Chinese government has continued to dampen the power of the domestic market with cases such as with Ant Group (The New York Times). The financial technology sister company of Alibaba – a Chinese e-commerce giant – the Chinese government began increasing government intervention within the company and suspended Ant Group’s public offering. Following Ant Group’s founder, Jack Ma’s critiques of the Chinese banking sector, the company was forced to become a financial holding company by Chinese regulators and was never publicly listed. However, the government suddenly changed its tone and announced plans to watch over technology firms with more “normalized supervision”. Soon after, it was announced that Mr. Ma would be giving up his control of the company. This example fully characterizes the inconsistencies in language and approach of the Chinese government and its failure to placate both foreign and domestic businesses.
Without clearly aligning the government’s true intentions and approach with its use of language, it will be difficult for China to earn back the trust of both foreign and domestic investors. If this trust is not earned back soon, foreign investors will likely carry out plans with other countries, like Vietnam and Cambodia. In addition, the inflexibility of government-owned enterprises and questionable control over private companies in China will kill the other path to economic growth left for China. Thus, China must match its approach to governance with what is said to achieve its goal.
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