Prof. Bai Chong-En on how to improve the business expectations
Tsinghua Econ Dean reminds people that private companies' ROA are much higher than SOEs' and created all new urban jobs in China. Better int'l relations help raise expectations, he says.
The Beijing Daily newspaper on Feb 6 published an article by Bai Chong'en, Mansfield Freeman Chair Professor in the Department of Economics, School of Economics and Management (SEM), Tsinghua University.
Before a complete translation of the article by Bai, a Chinese and U.S.-trained economist who is also Dean of SEM, here are some takeaways:
Bai advocates that China highlight the contribution of the private sector in 2023, officially the 45th anniversary since the reform and opening up.
In addition to highlighting the significant contribution of the private sector to the economy, Bai says for the return on assets (ROA), private enterprises' average ROA is significantly higher than that of state-owned enterprises (SOEs).
Bai also mentions that between 2012 and 2020, the private sector created all new urban jobs in China - in fact, more than that, because the state sector plus multinational corporations shed jobs.
Bai says policymaking should adhere to standards of professionalism, coordination, and predictability, suggesting a lack thereof.
Bai says good relations with more countries, especially countries in Europe and Asia, are also vital for positive expectations.
Bai suggests that concentrating on current “chokepoints” excessively may drain resources otherwise available for unknown innovations. [Zichen: China didn’t invent a ChatGPT, by the way.]
In very polite terms, Bai urges against overemphasizing “hard innovations” and downplaying the significance of “soft” innovations, such as business model innovations. [Zichen: It’s obvious that Beijing has its eyes set on hard stuff such as chips, jet passengers, and engines, while the mainstream view in China is that the sort of innovation that Chinese Big Tech developed and popularized to serve hundreds of millions of people is regarded as secondary.]
By the way, Tsinghua SEM has a unique Advisory Board, founded in 2010.
China's former premier ZHU Rongji, the founding Dean of Tsinghua SEM, is an active honorary Chairman of the Board.
The first chairman (2000-2002) of the Board was Henry M. Paulson Jr., former U.S. Secretary of the Treasury.
The second chairman (2003-2007) was Lord Browne of Madingley, former Group Chief Executive of bp p.l.c.
The third chairman (2008-2009) was H. Lee Scott, Jr., former President and CEO of Wal-Mart Stores, Inc.
The fourth chairman (2010-2013) was John L. Thornton, Executive Chairman of Barrick Gold Corporation and Chair Emeritus of the Brookings Institution.
The fifth chairman (2013-2016) was David M. Rubenstein, Co-Founder and Co-Chairman of the Carlyle Group.
The sixth chairman (2016-2019) was Jim Breyer, Founder and CEO of Breyer Capital.
The present chairman (2019 to present) is Tim Cook, CEO of Apple.
Jamie Dimon, Elon musk, Mark Zuckerberg, Terry Gou, Masayoshi Son, and some other biggest names in business are on the current Advisory Board.
Bai Chong’en: Improving the Expectations of Businesses, Where to Start?
The Central Economic Work Conference pointed out that the economic work for 2023 should take a strategic and holistic approach, starting with improving expectations and boosting confidence in development - after taking care of the big things, the little things will take care of themselves. Thus, improving expectations and restoring confidence are very important matters in the official view.
Implementing the "Two Unswervingly" to improve expectations of private enterprises
The past year has been marked by epidemic prevention as an essential factor affecting people's expectations. After optimizing COVID-19 policies, China may still be affected by the epidemic in the first quarter of this year. However, the total uncertainty is much less than before. It will likely be a different situation starting from the second quarter, which is crucial for normalizing expectations.
Recently, there have been some incorrect speculations about whether we should adhere to the "Two Unswervingly," which have affected the societal expectations of private enterprises. If we look at the data for 2022, China's overall investment growth is still relatively fast, but the growth of private sector investment is very slow, which is largely related to expectations for the private sector economy. The Central Economic Work Conference emphasized the full implementation of the "Two Unswervingly" with a clear and unambiguous attitude, which is crucial for restoring the confidence of private enterprises.
[Zichen: Two Unswervingly" means unswervingly consolidate and develop the economic sector of public ownership, and to unswervingly encourage, support and guide the development of the economic sector of non-public ownership. It is the Chinese codeword for supporting the private sector.)
The Central Economic Work Conference also required the implementation of equal treatment of state-owned and private enterprises from a systemic and legal perspective to help further restore confidence. In addition to these practical measures as part of the "Two Unswervingly," another point may play a vital role. 2023 marks the 45th anniversary of China's reform and opening up. We should take advantage of this opportunity to vigorously promote the indispensable role of the private economy in China's high-quality economic development so that people can have a more unified and clearer understanding. This can also help restore and boost the confidence of the private sector.
Fully acknowledging and promoting the role of private enterprises to enhance business confidence in the private economy
Xi Jinping, general secretary of the Communist Party of China Central Committee, used the numbers five, six, seven, eight, and nine to summarize the characteristics of the private economy at a symposium on private enterprises in November 2018. This is now universally known, while other data is also worth publicizing. One is that the private sector of the economy has relatively high efficiency. As for the return on assets (ROA), private enterprises' average ROA is significantly higher than that of state-owned enterprises (SOEs).
[Zichen: The combination of numbers 50/60/70/80/90 are frequently used to describe the private sector’s contribution to the Chinese economy, as Xi said: they contribute over 50% of China’s tax revenue, 60% of China’s GDP, and are responsible for 70% of innovation, 80% of urban employment and provide 90% of new jobs.]
The private sector is indispensable in improving efficiency and seeking high-quality development.
Regarding employment, the private economy has become the main contributor to job creation. Between 2012 and 2020, China added nearly 90 million urban jobs. The private sector created 100 million jobs, equivalent to more than 100% of urban employment growth. That means other types of enterprises shed jobs. Currently, young people face challenges in finding employment, with 61% working in the service industry. Flexible employment has become an essential means of alleviating employment pressure, and the platform economy is one of the crucial models offering such opportunities. Therefore, the recent Central Economic Work Conference emphasized the development of the platform economy.
[Zichen: Beijing uses “platform” to describe large internet platforms.]
The private economy accounts for over half of Chinese innovation. In 2022, private enterprises accounted for about 60% of research and development (R&D) investment, compared to 20% of R&D spending by SOEs and foreign enterprises, respectively. Regarding patents, private enterprises also accounted for more than 50%. The private economy has also helped solve many chokepoints, such as communication infrastructure. Without the development of companies like Huawei, it is difficult to imagine what kind of chokepoint problems our communication infrastructure would face now. The private economy has also significantly contributed to mobile payments and high-performance computing. If we can greatly promote the contributions of private enterprises, private sector entities may have more confidence.
Policymaking should adhere to standards of professionalism, coordination, and predictability to stabilize business expectations
Government policies are also a key factor influencing corporate expectations. Adhering to the standards of professionalism, coordination, and predictability of policymaking is the prerequisite for effective communication between the government and enterprises. In this way, enterprises will have rational expectations for policies. Both society and regulators have expectations for enterprises, and the expectations will be realized through certain regulations. Enterprises should actively cooperate with regulators to enable more reasonable regulatory measures, ensuring business vitality and better contribution to society.
The Central Economic Work Conference emphasized the need to develop the digital economy vigorously, improve normalized regulation, and support platform enterprises in leading development, job creation, and international competition. How can we improve normalized regulation? This requires professionalism, coordination, and predictability in policymaking.
To achieve this, we must adhere to the principle emphasized by the Central Economic Work Conference: seeking truth from facts, respecting laws, adhering to systematic approach to thinking, considering worst-case scenarios, and taking practice as the standard for testing policies and work results. If we comply with this philosophy, enterprises will better understand policies and stabilize expectations.
Accurately understanding the slowdown in economic growth and setting realistic expectations
Several factors affect corporate expectations, such as the changing trend of the Chinese economy. Economic growth will inevitably slow down. However, as long as the slowdown is not too significant, businesses should have a reasonable outlook and not be disheartened by the deceleration of growth.
In 2023, we need to ensure a relatively fast growth rate, which is conducive to restoring market confidence. With the optimization of policies, especially in epidemic prevention and control measures, I believe, given the GDP in 2022, China can achieve relatively fast growth in 2023, which will significantly help raise people's expectations.
There are many uncertainties in the international environment. Still, if we can unite and develop good relationships with more countries, especially countries in Europe and Asia, we may encounter fewer challenges, which is also vital for people to form positive expectations.
Seizing the opportunities brought by new technologies is also crucial for forming positive expectations
New technologies, including green and digital, have brought us many opportunities. It is essential to use these opportunities well. Balance solving known chokepoint problems through innovation and exploring unknown innovations. Otherwise, by overemphasizing the chokepoint problems visible to us, we may miss some exploratory innovation, which may create new chokepoints in the future and be detrimental to long-term expectations.
At the same time, innovation in the application of technology will increase technology's application scenarios and opportunities to generate value. Therefore, we should pay attention to the importance of the innovation of application, especially business model innovation, in forming effective expectations.
Although the situation in 2023 will improve significantly compared to 2022, we still need more efforts to ensure that expectations can develop steadily and that our economy can grow relatively quickly in the next few years. (Enditem)
Check out our latest newsletters on Pekingnology and CCG Update
Why would Tsinghua School of Economics have an Advisory Board made up of US/Western capitalists. Wouldn't they advocate for US/Western interests?!