Page 318 - 2023 White Paper on the Business Environment in China

3 White Paper on the Business Environment in China
2.16 Financial Sector
Key Take-Aways
• The nation has reduced the industries
covered by a negative list for foreign investment
for five consecutive years.
• China will expand the Stock Connect
scheme that links the mainland and Hong Kong
markets, a further step to boost cooperation
between the two capital markets.
• US regulators have gained full access to
the audits of Chinese companies for the first time,
reducing the threat that Chinese tech giants could
be kicked off US stock exchanges.
Background
Beijing has vowed to go all out in 2023 to save its a controversial speech that criticized China’s
Covid-hit economy by boosting consumption and
loosening control over private industry, including
the struggling tech and property sectors. The new
pledge marks a big shift from leader Xi Jinping’s
years-long effort to rein in private businesses,
which were perceived as too powerful and
“disorderly.” The world’s second biggest economy
faces multiple challenges. Covid infections were
surging in China at the end of 2022 after leaders
unexpectedly eased its restrictive Covid policy. At
the same time, its exports were hurt by a slump
in global demand. Stabilizing economic growth is
the top priority for 2023, according to an official
readout following the conclusion of the Central
Economic Work Conference (CEWC), a key annual
meeting of top leaders. “We need to encourage and
support the private sector economy and private
enterprise in terms of policy and public opinion,”
the statement said. “We must protect the property
rights of private enterprise and the interests of
entrepreneurs in accordance with the law.” The
remarks came shortly after a slew of economic data
showed business activity plummeting in November
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2022. Economists expected growth between 2.8%
and 3.2% in 2022, one of the lowest levels since
1976, when former leader Mao Zedong’s death
ended a decade of social and economic tumult.
The comments from China’s top leaders were a
strong signal that policymakers will be relaxing
their ironclad grip on the country’s private sector,
which had previously been a strong driver of
consumption, investment, and job creation. Covid
controls and regulatory crackdowns hit China’s
job market hard, with youth unemployment rates
soaring to record highs in 2022. Since late 2020,
under Xi Jinping’s “common prosperity” drive, the
authorities have launched a regulatory onslaught
on sectors ranging from e-commerce to real state
to education. The crackdown began in October of
that year, when regulators yanked the blockbuster
IPO of Jack Ma’s Ant Group, days after he gave
financial regulations for stifling innovation. Around
that time, Beijing moved to rein in the mountains
of debt accumulated by property developers. The
crackdown on excessive borrowing led to a liquidity
crisis across the industry, resulting in some high-
profile developers defaulting on their debt. The
collapse in real estate, which accounts for as much
as 30% of GDP, triggered widespread and rare
dissent among the middle class. In late December
2022, two of the country’s top ruling bodies, the
Central Committee of the Communist Party and
the State Council, issued a strategic plan to expand
domestic demand and stimulate consumption
and investment until 2035. The Chinese Academy
of Social Sciences, a top government think tank,
issued a report in December 2022 recommending
the government set the growth goal at “above 5%”
for 2023 (He, China Bets).
China's resolution to forge ahead with opening-
up was repeatedly reaffirmed by Chinese
President Xi Jinping in 2022. "No matter how
the world will change, China's faith in and its
commitment to reform and opening-up will not