Yaxue Cao, December 7, 2023
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Desperate times call for desperate measures. On the heels of worrying economic numbers of the first two quarters that defied bullish expectations at the beginning of the year, in mid-July, the CCP Central Committee and the State Council issued “Opinions on Boosting the Development and Growth of the Private Sector,” known as the 31 rules. A flurry of more specific directives followed in August, September, October, and November coming from the State Taxation Administration, the State Administration for Market Regulation, the Supreme People’s Procuratorate of the People’s Republic of China, and the People’s Bank of China respectively. The total of 129 rules exhort private businesses to invest and expand, promising more market access, fair competition, favorable financing support, legal protection of properties and entrepreneurs’ rights. State media have drummed up volume in support of private businesses accordingly.
The desperation is palpable. After all, the private sector contributes more than 50% of tax revenues, comprises more than 60% of GDP, makes more than 70% of technical innovations, accounts for more than 80% of employment, and makes up more than 90% of all enterprises in China, according to the government.
How have the 129 rules been received? Are private businessmen excited and gearing up after three years of zero-Covid lockdowns that sent them spinning, if they’ve survived at all?
On November 28, Professor Wei Jie (魏杰) from the School of Economics and Management at Tsinghua University gave a long lecture analyzing China’s macro-economic trends and prospects at the Research Institute of Tsinghua University in Shenzhen (深圳清华大学研究院). A transcript has been circulating on social media. Speaking of why investment in the first three quarters of the year has remained flat despite government push, he cited three reasons, and the first one was that the private sector has little desire to invest. He further noted that most of the private businesspeople have plans to emigrate, but no medium and long term plans for business.
Here the story gets interesting.
In July, after the 31 Rules were issued with much fanfare, Prof. Wei was present at a forum of private entrepreneurs. Why asked why private businesses were still unwilling to invest, this is what they said. “We don’t really need incentives; what we want is a comprehensive system of legal protections. The new incentives are mere policies of the moment without legal ratification and can be changed at any time. You have been veering this way and that way too much. In 2022, you raised havoc for us with ‘common prosperity’; in 2021, you raised havoc for us again when you cracked down on ‘disorderly expansion of the capital’. Now that the economy is tanking, you want us back; when the economy recovers, you are going to throw us out again.”
A participant at the forum got straight to the point. “All of us have higher education now, and it’s not easy to bait us any longer. We are not the private businesses of forty years ago. After forty years of ups and downs, we’ve come to the conclusion that you don’t really care about our development. My heart tells me that we’ll never have enthusiasm again unless you amend the Constitution and change your theoretical system.”
Still rendering what he had heard from the forum and what he had found after visiting 150 or so businesses in recent months, Prof. Wei went on to explain why, to the private business class, the Constitution itself is problematic and its Marxist theory irredeemable. According to China’s Constitution, “the state-owned economy, namely, the socialist economy under ownership by the whole people, is the leading force in the national economy” (Article 7), and other forms of ownership may “develop side by side” (Article 6). In other words, private businesses don’t have equal status under the constitution.
Marxism, also written into the Chinese Constitution, maintains that workers and workers alone create value, and private entrepreneurs, capitalists by definition, exploit workers and appropriate the value they create. And the goal of communism is to eliminate exploitation. “We know our place under the Constitution and in a Marxist ideology, so once we’ve made money, we leave China and go elsewhere, for the wealth we make here is not permanent,” Prof. Wei Jie relayed what he had heard from private businesspeople.
Nobody summarizes the “original sin” of private businesses more succinctly as Xiang Songzuo (向松祚), another economist and a fierce critic of the CCP’s policy towards private business: “Supporting private property is their reluctant choice, eliminating private property is their lofty ideal.”
Prof. Wei Jie agrees that the necessary changes are unlikely to happen.
These new measures have met with ridicule from Chinese netizens and skepticism from commentators and economists across the board in China. Criminal defense lawyers have reacted almost unanimously. “It’s better to release those entrepreneurs who have been wrongfully arrested and sentenced, return their confiscated assets, than issue 25,000 such policy measures!” “No number of measures can revive private businesses without solving the problem of local governments and public security bureaus wantonly arresting private entrepreneurs for the purpose of appropriating their assets to enrich themselves, without redressing the grievances of entrepreneurs who have been wrongfully cracked down as ‘dark and evil forces.’”
A case in point is the case of Sun Dawu (孙大午), an agricultural billionaire in Hebei province and a poster boy of China’s reform and opening up. A communist party member and a veteran, he started a chicken and pig farm with his wife in the countryside in the 1980s, and over the next 36 years his company Dawu Group grew to be a conglomerate worth of 5 billion RMB that included animal husbandry, seeds, fertilizers, animal feed, food processing, and construction, providing over 10,000 jobs and free health care and education to employees. In November 2020, Sun Dawu, his wife and sons, and the entire management team were arrested for a small protest held in front of the local government over a land-use dispute with a state-owned farm. More charges were fabricated against him and the Dawu Group. In July 2021, he was sentenced to 18 years in prison, and his company was immediately taken over by the local government. In April, 2022, the conglomerate was auctioned off at 686.1 million RMB to a company that had been registered for only three days.
I recently talked to Mr. Li Jinxing (李金星), a criminal defense lawyer known for representing high-profile clients and correcting wrongful convictions.
He said, “From the perspective of a defense lawyer, the crackdown on the so-called ‘dark and evil forces’ (打黑除恶) in recent years has been a catastrophe for thousands of private entrepreneurs and a deadly blow to the Chinese economy. Since the founding of the PRC, apart from the Campaign to Suppress Counterrevolutionaries (镇压反革命运动) in the 1950s, I believe this is the most significant campaign against private entrepreneurs. However, the outside world has no understanding of it at all, and no one is willing to study its enormous impact on the Chinese economy and politics. Only by understanding these wrongful cases against private entrepreneurs, can you understand why the Chinese economy is in such dire straits.”
He was the appeal lawyer for Wu Xiaohui (吴小晖), a Chinese tycoon and founder of Anbang, in 2019. “That year, I flew 20 times from Beijing to Shanghai. They would not let me meet my client. Every day I went to the prison and talked to the pair of stone lions at the gate about my helplessness.”
In a detention center’s meeting room, another of his clients, a billionaire in Shanxi province, asked Mr. Li to petition the detention facility to give him some salt-pickled turnip, because his prison food had no salt and he was suffering from edema as a result. Mr. Li was disbarred in 2019, and the billionaire in Shanxi was the last client he had seen as a defense lawyer.
“So many entrepreneurs failed not due to any business mistakes of their own, but were ruined by the lack of justice in the legal system,” Li Jinxing reflected recently on X.
“Without genuine judicial fairness, all our wealth is meaningless, and the achievements of the past forty years simply cannot be sustained. I fully understand the phenomenon of talents and capital leaving China. Without judicial fairness, economic revitalization is just empty talk, and no matter how many policies are put in place, they will be good for nothing.”
Related:
Sun Dawu: A Chinese Agricultural Entrepreneur’s 36-year Dream in the Era of Reform and Opening Up (Part One), March 30, 2021.
Sun Dawu: A Chinese Agricultural Entrepreneur’s 36-year Dream in the Era of Reform and Opening Up (Part Two), April 2, 2021.
Sun Dawu’s Closing Court Statement, July 28, 2021.
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