China is renewing its pledge to embrace the private sector as private investment falls to an 11-year low

Beijing has vowed to rein in its private sector in 2021 amid a record decline in the country’s private fixed investment, a key driver of China’s economic recovery.

Despite Beijing’s re-empowerment of the private sector and the issuance of supportive policies, China’s annual growth in private fixed investment fell to 0.9 percent in 2022, the lowest in 11 years.

On February 15, China’s state-owned magazine “Qiushi” published an article titled “Several Key Issues in the Current Affairs of China’s Economy.”

The article claims that Beijing treats its state-owned and private enterprises equally, promotes the development of the private sector, and that the Chinese government at all levels has introduced a series of policies to support private enterprises in 2022.

Despite this claim, data released in January by China’s National Bureau of Statistics showed that growth in private fixed capital investment in 2022 fell to the lowest level since 2012.

Private fixed capital investment measures the expenditure on fixed assets by private enterprises, non-profit organizations and households in the Chinese economy. Fixed assets are assets that are intended for long-term use, such as land, buildings, and certain types of equipment, and that cannot be easily converted into cash.

At a press conference in January, Kang Yi, director of the Bureau of Statistics, attributed the low growth of private investment in 2022 to the decline in real estate market performance.

Although private investment growth will slow sharply in 2022, January data suggest that worsening market conditions will continue into 2023.

According to China’s National Bureau of Statistics, private industrial profits in 2022 fell 7.2 percent year-on-year, the first decline since 2011. On the other hand, the profit of private industrial enterprises increased by 27.6 percent in 2021. year after year.

In addition, China’s monthly container freight rate index has declined across the board since September 2022, and the largest decline in the comprehensive freight rate index occurred in October 2022, with a monthly decline of 24.8 percent.

In January 2023, the container freight rate index decreased by 11.2 percent month-on-month. Meanwhile, the European route index fell 16.7 percent month-on-month, while the US-West and US-East routes fell 7.8 percent and 9.8 percent, respectively.

In 2022, the annual aggregate trading volume and turnover of China’s futures market fell for the first time since 2018, while the overall profit of futures companies across the country fell by about 20 percent.

The futures market is an auction market where participants buy and sell commodities and futures contracts for delivery on a specified future date as defined by Investopedia.

China’s futures market continued to decline in January, with trading volume down 39.85 percent month-on-month.

Albert Song, a current affairs commentator and expert on China’s financial system, told The Epoch Times on February 17 that the decline in trading volume in China’s futures market reflects a lack of market confidence, poor liquidity and reduced economic activity in the market. .

According to data released by the China Bureau of Statistics, the “aggregate financing of the real economy (AFRE)” increased by 9.6 percent in 2022 compared to the previous year, similar to the growth of 9.8 percent in 2018. The annual growth rate of fixed capital investment (FAI) was 8.7 percent in 2018, significantly higher than the 0.9 percent growth in 2022.

Aggregate financing to the real economy (AFRE) is “a broad measure of a nation’s annual liquidity flows. [China] As defined by University of Chicago scholar He Zhiquo in 2011 and described by officials as “indicating the real economy’s total funds drawn from the financial system over a period of time.”

As for the stark difference in FAI despite similar AFRE when comparing the two years, Song explained that this is related to a phenomenon called “fiscal loosening” that is becoming increasingly severe in China.

Discontinuation of financial activity refers to the non-use of funds in a way that could increase their value. Especially against the backdrop of inflation, idle funds lose value because they do not grow at the pace of rising costs.

Song said the circulation of funds in the financial system will seek high-return opportunities instead of flowing into the real economy. Idle funds will make it difficult for the real economy to access low-cost financial market funds and lead to higher costs of using funds.

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