Keeping things private

Jailed: Wu Xiaohui, the former Anbang boss

Like many businesspeople in China, Wu Xiaoping’s name card is stuffed with job titles. He identifies himself as an economist, a professor and a banker. He also mentions other accolades. He’s a “financial industry veteran” from China International Investment Corp, and a co-founder of one of the country’s P2P lenders.

Wu has no problem with self-promotion. According to Phoenix News, the 43 year-old told reporters that he first got interested in reading the Napoleonic Code when he was six and he has never been able to pay a visit to a bathroom without reading a book. He claims a photographic memory too, which must have helped him achieve top scores in the 1993 college entrance exams.

Despite all these credentials Wu was largely unknown on social media until he published an article last month claiming that China’s private sector would fade away. His prognosis was that it had fulfilled its “historical mission” to achieve economic growth and help state-owned enterprises (SOEs) to develop. “The private sector economy shouldn’t expand blindly. A new form of a more concentrated, more unified and more scaled-up economy of mixed ownership should take on a more influential role in the development of China’s socialist market economy,” Wu wrote on WeChat, adding that SOEs should be encouraged to take control of private sector firms.

Wu didn’t support his argument with much economic data but his article quickly became one of the most forwarded subjects on the Chinese internet.

In fact he was soon elevated from obscure blogger to internet celebrity, with a rapidly expanding cohort of followers. His comments about the future of the private sector in China even found their way into prominent international media outlets such as The Economist and the New York Times.

The forecasts have stirred fierce debate, especially among Chinese entrepreneurs, with some seeing Wu’s suggestions as a trial balloon for a paradigm shift in economic policy.

Some of those concerns subsided after state censors started to take down Wu’s article. Media outlets did their best to clear the air too, explaining that Wu was no Party mouthpiece and noting that he has dished out some odd ideas in the past (last year he predicted that Hong Kong’s bourse would be combined with the A-share market within three years).

What’s interesting is that Wu’s article should attract so much attention. According to the Beijing News, the role of private sector firms in the economy is a recurring topic but Wu’s extreme position on phasing them out has hit a raw nerve at a sensitive time.

In January we reported that this year might cement the relative ascendancy of SOEs over privately-held firms in a number of industries (see WiC393). Private companies have also experienced the worst of the “supply-side reforms” (effectively, the campaign to reduce excess capacity) while SOEs have been kept alive with subsidies and other implicit support from the state.

The sense of unease in the private sector has also increased since the fate of several disgraced tycoons was made public. Wu Xiaohui, the former boss of Anbang Insurance, was sentenced to 18 years in prison in May for financial fraud. Ye Jianming, the former head of CEFC China, another acquisitive company, also vanished from public sight in March. And local media is reporting that the trial of Tomorrow Group’s Xiao Jianhua, the influential financier who disappeared mysteriously from a Hong Kong hotel in January last year, will start soon.

Each of these men has been investigated for wrongdoing, with the government intervening in cases of what it deems to be improper or reckless behaviour. But their downfall has stirred anxiety that the authorities could be preparing a bigger role for SOEs in the economy in future, as part of a process known in China as guojinmintui, or “the state advances, while the private sector retreats”.

These kind of debates aren’t new and there have been periods when the SOEs have been portrayed as hopeless relics, crying out for the reinvigorative influence of private ownership. However, Wu’s endorsement of a fuller flush of guojinmintui comes at a time when policymakers may be looking more to the largest state enterprises as essential contributors if the country is to stand any chance of winning its trade and tech war with the US. There have been other signs that the pendulum is swinging ‘stateward’. According to CBN, up to 160 A-share firms have seen changes in ownership so far this year and at least 22 of them – with assets worth Rmb130 billion ($18.8 billion) – have been acquired by SOEs.

The same newspaper reported that local governments such as Shenzhen have been offering financial aid to private sector bosses with cashflow problems. However, these loans have to be collateralised with equity stakes, suggesting a subsequent rise in government ownership and influence.

At a press conference held by the State-owned Assets Supervision and Administration Commission (Sasac) this week, a spokesperson for the agency denied that local governments or leading SOEs have been asking for bargain basement deals with private companies battered by the impact of the trade war and Beijing’s deleveraging campaign.

“The government will remain neutral toward companies of all categories of ownership,” the spokesman said, adding that more than 2,600 SOEs have sold stakes to private sector owners in recent years.

But amid speculation that Beijing could tip the scales further in favour of the state enterprises, The Economist noted that Xi Jinping has been sitting on the fence on guojinmintui. During a visit to northeastern China last month, Xi began with a defence of the SOEs, saying that he wants them to become stronger, better and larger. “Any thoughts or comments that doubt or bad-mouth the SOEs are wrong,” he warned.

Then during a later stop at a factory run by an entrepreneur Xi promised more reforms to make things easier for the private sector. As China celebrates the 40th anniversary of Deng Xiaoping’s market reforms, there has also been speculation that Xi may choose to reprise Deng’s famous tour to southern China in a visit to Guangdong. Such a visit would be seen as symbolic of support for the private sector, in the same way that the 1992 trip signalled Deng’s desire to reboot the market reform process and sideline those that favoured a centrally-run economy.

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