NDRC's nine new steps seek to boost honesty, build better business climate

China's top economic regulator on Thursday announced nine measures, such as the use of policy tools to penalize local governments with untrustworthy behaviors toward private companies, in a bid to enhance the government's commitment to honest performance and create a more favorable environment for the private sector.

Analysts said the new move signals the country's latest push to bolster the private sector, and is part of a package of stimulus measures to revive China's recovery trend amid challenges and pressures from lackluster demand and a more complicated external environment.

The National Development and Reform Commission said in a document released on Thursday that penalties for local governments with untrustworthy behaviors include restrictions on investment support from the central government budget as well as restrictions on local government special bond applications and project financing.

The NDRC said the country is dedicated to strengthening the building of the government's honest performance mechanism, and it aims to tackle issues such as constant government policy changes, new officials not meeting the commitment undertaken by their predecessors, harming fair transactions in the market and behaviors hurting businesses.

Tian Xuan, associate dean of Tsinghua University's PBC School of Finance, said moves to enhance the government's commitment to honest performance and the establishment of the penalty mechanism will help get outstanding payments owed to small and medium-sized enterprises cleared, which will to some extent help solve their problems in terms of a lack of funding.

Tian highlighted the importance of boosting support for the private sector, especially the SMEs, saying the healthy development of SMEs plays a key role in maintaining the economic dynamic and boosting innovation and entrepreneurship. "That will help stabilize growth and inject strong impetus into the economy."

It is widely acknowledged that the private sector stoked China's high growth in recent decades. Private firms in China contribute more than 60 percent of GDP, 70 percent of technological innovation and 80 percent of urban employment, official data showed.

Analysts said the newly released document is part of the follow-up supporting policies to better implement the top-level guidance released last month for promoting the development of the private sector, which will help boost market confidence, stabilize expectations and help consolidate the recovery trend.

Looking ahead, they said more supporting measures will be rolled out in the near future to boost support for the private sector.

Feng Jianlin, chief economist at Beijing FOST Economic Consulting Co, said the country is building a"1+N" policy system for bolstering the private sector, in which "1" is the top-level guidance and "N" symbolizes the detailed follow-up measures, including the newly released document as well as the other two documents, released recently, on promoting private investment and relieving problems faced by private firms during their development.

Feng said the country's recent moves show its firm determination to boost the development of the private sector, and the country will accelerate the push for the study and formulation of more detailed supporting policy measures.

China has already stepped up efforts to bolster its private sector, as the NDRC held several meetings last month with private companies from sectors ranging from equipment manufacturing to new energy, to address private enterprises' concerns and support their sustainable development.

According to the National Bureau of Statistics, fixed-asset investment by the private sector edged down 0.2 percent year-on-year in the first half of 2023 versus a 0.1 percent decline in the first five months of the year.

Hong Yong, an associate research fellow at the e-commerce research institute of the Chinese Academy of International Trade and Economic Cooperation, said the private sector still faces prominent challenges in certain areas like financing difficulties, market entry barriers and uncertainties arising from constant policy changes.

Hong said it is advisable for the government to set up special funds or financial institutions to offer a wide range of financing channels, and more efforts should also be made to ease restrictions on market entry and foster a stable policy environment.