Weapons Of The Rich. Strategic Action Of Private Entrepreneurs In Contemporary China. Thomas Heberer

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СКАЧАТЬ the work of the government during the second session of the 13th National People’s Congress in March 2019, Prime Minister Li Keqiang emphasized that improvement of the business environment of small and medium enterprises is a must, that the bank loan problem must be solved under any conditions, and that private banks should be permitted and fostered.⁵⁷ Shortly thereafter, the political leadership reiterated measures to be taken in order to raise the confidence of private entrepreneurs, most notably an improvement of market access for private enterprises, facilitation of access to bank loans, simplification of administrative procedures, and the strengthening of market supervision and regulation. The prime minister also emphasized the significance of competition and of equal treatment of private and SOEs which must be guaranteed by the state.⁵⁸ China’s supreme judge Zhou Qiang promised that the rights of private entrepreneurs would be better protected,⁵⁹ the first time the private sector was ever mentioned in a work report of the Supreme Court. In mid- July 2019, the National Development and Reform Commission decided upon measures to better protect private enterprises’ intellectual property rights, to guarantee their equal market access and fair treatment regarding public bids and government procurement, and to punish infringements upon private enterprises.⁶⁰

      As a matter of fact, the Chinese government has for years tried to solve these issues, but with limited success. Against the backdrop of the recent economic slowdown and the US–China trade war, small and medium enterprises are facing increasing risks, all the more since private enterprises in 2017 accounted for more than 90 percent of Chinese exports. The number of Chinese entrepreneurs on the Hurun lists’s 2 billion RMB threshold fell by 237 in 2018 from 1,893 in 2017 (Hancock, 2019).

      With regard to taxation by private entrepreneurs, Changdong Zhang (2017) argues that due to high tax rates (value added tax 17 percent, corporate tax 33 percent) almost all private entrepreneurs try to avoid or evade taxes by looking for patrons within the party state to protect them, which leads to hiding business income from the tax authorities and outright bribery of officials. The party state, according to Zhang, is not interested in remedying these practices since it allows maintenance of effective political control over private entrepreneurship: In the case of (political) ‘misbehavior’, entrepreneurs could at any time be arrested by being accused of ‘tax evasion’. At the same time, as Zhang further argues, the party state has a ‘strong incentive to keep a large SOE sector for both ideological and instrumental reasons’ (Zhang, 2017: 49). In fact, there is some evidence on this. In September 2018, Li Yang, Chairman of the National Institute for Finance & Development, a think tank of the Chinese government, argued that investment in and the takeover of private enterprises by SOEs had increased substantially. This observation, which has been shared by a number of our respondents in the later stages of our fieldwork, points to a more recent trend in China’s ongoing economic transformation formula which may be called ‘oligopolization under SOE leadership’. State-owned companies at all administrative levels are ‘encouraged’ by local governments to invest in private enterprises to control a majority of shares or buy them out, if possible. From their perspective, this makes sense: SOEs become, arguably, more modern and competitive, which facilitates access to bank loans and helps local economic development. Li warned that this might discourage and negatively impact private sector development (Han, 2018). However, the current ‘oligopolization trend’ is hard to stop given the vulnerability of China’s small- and medium-sized private enterprises, the powerful resources most SOEs have at their disposal, and the cadre evaluation system which still regards economic development as the major indicator of performance and, thus, personal promotion.

       A Core Problem: Getting Access to Capital

      A major obstacle to private sector development is a severe shortage of investment capital. Particularly in times of economic crisis, banks are rather reluctant to lend credits to enterprises; and if they do, they would rather serve state-owned companies which can rely on official collateral or big private conglomerates who usually meet their loan performance targets more quickly than small- and medium-scale enterprises. Even if the government demands that banks lower their lending standards to support private enterprises, change is unlikely as long as the state does not back up credits for the private sector in some way — for instance, by loosening capital requirements for banks or providing guarantees on private sector loans to reduce the lending risk (Orange Wang, 2018). Moreover, the granting of loans is selective. As Quan and Leng (2018) have shown, in many places local governments decide which company is qualified to receive a loan and which is not, giving priority to high-tech businesses and obstructing loans to small- and medium-sized firms of the manufacturing sector which have been the principle driving force of economic development in recent decades (Chan and He, 2019). On top of this, if an enterprise is unable to win contracts from public offers it might be unable to get any credit at all.

      A large number of private enterprises, acting as guarantors for other firms, are also facing insolvency. Since private entrepreneurs as a rule need proper collateral or guarantors in order to acquire a bank loan, private enterprises frequently act as mutual guarantors for other businesses. This ‘cross-guaranteeing of debt’ is dangerous for financial systems and new lending (Shu, 2019). In addition, delayed payments of government authorities and SOEs to private enterprises (for completed tasks) are a further issue which negatively impacts cash flow of enterprises (Hu, 2019).

      Due to the above-mentioned significance of small- and medium-sized firms, the central government seems determined to undertake efforts to find a solution for all these problems. Accordingly, in February 2019, the CCP’s Central Committee and the State Council ordered that all Chinese banks increase lending to private enterprises in order to support the private sector and to avoid a further slowdown of the economy. Also in 2019, large commercial banks are expected to increase the number of loans offered to small- and medium-sized enterprises by more than 30 percent (Jinrong fuwu 18tiao, 2019). Since banks have still been reluctant to provide loans to small- and medium-private enterprises due to higher credit risks, China’s Banking and Insurance Regulatory Commission (CBIRC) in February 2019 again urged state-owned commercial banks to facilitate and increase lending to these enterprises and reduce lending rates in order to avert an economic slowdown.⁶¹

      Although the central government repeatedly promised to provide more loans to private enterprises, in reality no major change was observed until the end of 2018 (Yao, 2018). However, due to the importance of the private sector, the central government has, historically, at least endeavored to find further solutions for these recurring problems. For example, in 2008, soon after the central government had launched the ‘4 trillion economic package’ in response to the outbreak of the world financial crisis, the People’s Bank of China (PBOC) released credits through China’s banking system. It also encouraged the sub-branches of commercial banks to increase their lending by administrative incentives such as promotions or demotions. This induced the banks to draw up so-called ‘implicit contracts’ with local enterprises, i.e. establishing a system of mutual guarantees between local enterprises to extend their ability to apply for loans and then force the banks into lending, so that official targets for overall credit expansion could be met. However, when inflation and unsustainable investments reached unbearable levels, the government soon turned to fiscal contraction, leading to a severe credit crunch in the private sector beginning in the late 2000s without an end in sight so far (Chen Ye and Guan, 2018; see also Wang and Tong, 2018). To this day, a relaxation of lending policies on the part of China’s banks is hampered by high levels of public and private debt, making it politically risky for the People’s Bank of China — or the central government, for that matter — to force the banking system to expand its credit lines for private enterprises.⁶²

      In reality, there is contradictory information on solving the credit issue. In April 2019, it was reported that state-owned commercial banks such as the Bank of Communication had increased the credit volume for private enterprises and concurrently reduced interest rates.⁶³ Moreover, in June 2019, China’s State Council decided to further reduce real interest rates on loans for small and medium enterprises, cap lending surcharges, support corporate finance, facilitate intellectual property pledge financing, and improve financial services in general for СКАЧАТЬ