Private investment accounts for more than half of the total investment, and since 2023, it has faced certain pressures in terms of growth. Various regions have introduced measures to strive for a favorable environment, hoping to promote the continuous optimization and adjustment of the private investment structure.
The contraction of real estate development investment is the main factor that has been dragging down private investment.
With the recent completion of a further investment by Wenzheng Assets in Moku Graphic, Moku Graphic officially changed its name to "Shenzhen Moku New Material Group Co., Ltd." As an old shareholder, Wenzheng Assets continued to increase its investment. The company's head expressed a firm belief in the future development of Moku Group. Institutions such as Shenzhen Venture Capital and Shenzhen Bao'an District Industrial Investment Guidance Fund also participated in this round of investment.
With the support of various investments, Moku Group has been developing steadily and has now become a leading supplier of inkjet ink and digital application solutions in China. It is a national-level specialized and innovative "little giant" enterprise, a national high-tech enterprise, and has been listed in the 2023 global ink enterprise rankings. At the same time, Moku Group has won the Epson Annual Outstanding Strategic Partner Award for three consecutive years, widely recognized in the industry for its technical strength and high-quality products.
Private investment plays an indelible role in helping enterprises grow and promoting economic development. The country is also vigorously supporting private capital investment. Recently, from the public release of the "Opinions of the CPC Central Committee and the State Council on Promoting the Development and Growth of the Private Economy," to the establishment of the Private Economic Development Bureau within the National Development and Reform Commission, and to the launch of the "Private Investment Issue Feedback Column," a series of hard-core measures have been precisely targeted to help private investment improve.
Recently, private investment data has been hovering at a low level. In 2023, the national fixed asset investment (excluding farmers) was 5,030.36 billion yuan, a year-on-year increase of 3.0% (calculated at comparable prices), with an acceleration of 0.1 percentage points compared to January-November. Among them, manufacturing investment increased by 6.5%, with an acceleration of 0.2 percentage points; infrastructure investment (excluding the electricity, heat, gas, and water production and supply industry) increased by 5.9%, with an acceleration of 0.1 percentage points. In 2023, private fixed asset investment was 2,535.44 billion yuan, a year-on-year decrease of 0.4%, with a narrowing of 0.1 percentage points compared to January-November. The proportion of private investment decreased from 54.2% in 2022 to 50.4% in 2023. Over the past five years, the proportion of private investment has decreased by an average of 1 percentage point per year. Therefore, private investment has become the main factor for the slow growth of national investment.
Several experts interviewed by "Finance and Economics" said that after the introduction of a series of policies to promote the development and growth of the private economy, the confidence of private capital has been boosted, "If the follow-up policies are implemented in detail, the vitality of private enterprises will be further stimulated."
To further promote private investment, a series of policy measures by local governments have been implemented in recent times: In 2023, Zhejiang introduced 32 measures to promote the high-quality development of the private economy, clarifying that the proportion of the province's "4+1" special funds invested in private investment projects should not be less than 70%; Beijing publicly recommended 57 key projects to private capital at the beginning of September last year; Chongqing recently proposed 27 measures from refining and clarifying the industries and fields that support private investment participation, and supporting private investment in revitalizing existing assets; Guangzhou focuses on solving the actual difficulties and prominent issues faced by private investment, formulating 21 policy measures to encourage private investment to participate in key field construction and strengthen the financial support for private investment.
Analysis of the direction of private investment
Luo Guosan, director of the Fixed Asset Investment Department of the National Development and Reform Commission, once stated at a regular press conference held by the National Development and Reform Commission that since the establishment of private investment statistical indicators in 2012, the proportion of private investment in total investment has always been more than half. However, since 2022, private investment growth has faced significant difficulties and downward pressure. In 2022, private investment grew by 0.9%, accounting for 54.2% of total investment. In the first half of 2023, both the growth rate of private investment and its share of total investment have declined.As the main force in fixed asset investment, private investment is an important force in stabilizing growth, employment, and promoting economic transformation. However, in recent years, private investment has shown a tendency towards sluggishness. Wang Xiaolu, Deputy Director and Researcher at the National Economic Research Institute, pointed out that the stagnation of private investment is, on one hand, a normal adjustment in line with market laws, and on the other hand, private enterprises still have many doubts about the formation of a fair competitive business environment, lack confidence in the future, and are hesitant to invest rashly.
"Finance and Economics" research has found that since 2023, the situation of private investment has been generally sluggish. Chen Yifeng, the person in charge of Wen Zheng Assets, told "Finance and Economics", "In 2023, the performance of most companies has declined. The valuation center of the stock market has decreased, and the investment exit returns have been affected. Some targets that were unlocked in the first half of the year, which were expected to earn five times, ended up with half the profit. Overall, if sold, the returns are low; if not sold, the investment exit is not smooth. However, investment institutions focus on long-term investment value, so they are more concerned about the investment trends in the next five to ten years."
Mou Ying, a managing partner of Qingyu Fund, told "Finance and Economics" that since 2023, the venture capital market has experienced a cooling. The proportion of market-oriented funds willing to make long-term allocations has decreased, and state-owned capital has become an important source of fundraising. "The current slowdown in private investment growth reflects the market's wait-and-see sentiment," said Mou Ying. In her view, over the past few decades, various investment institutions and market entities have been striving to integrate into the global industrial chain. Under the current international economic situation, the market has shown a trend of deglobalization, which contradicts the investment habits established during the rapid development of the industry in the past, and everyone has not yet adjusted. "Not knowing where the future direction is, the growth rate of private investment naturally slows down."
Chen Yifeng told "Finance and Economics" that since 2015, there has been an investment cycle of about three years. From 2015 to 2018 was a down cycle, from 2019 to 2021 was an up cycle, and from 2022 to the present, another down cycle has begun. Currently, it may be a turning point for recovery from the bottom.
From 2015 to the present, the "bottom" of each new cycle has been lower than the previous cycle, and the "top" is not as high as the previous cycle, "the downward trend is more pessimistic." Chen Yifeng said that cycles are good things and also create buying opportunities for investment institutions, but the downward trend makes future expectations worse, which will bring great challenges to private investment. However, from a long-term perspective, it is not pessimistic. It is suggested that "investment institutions should focus on structural opportunities and strive to go through the cycle and hedge the trend."
Chen Yifeng introduced that Wen Zheng Assets' current strategy is to look for "three super" tracks: super high, sectors that can achieve an expected compound annual growth rate of 20%; super wide, industries with a scale of more than one trillion yuan; super long, fields with sustainable development for more than ten years, to offset the risk of downward macro trends. The new energy, medical health, and intelligent fields that Wen Zheng Assets focus on have many such "three super" sectors.
Mou Ying said that there is a "bullwhip effect" in the industrial chain, that is, the "demand contraction" issued by the client side has been magnified countless times when it is transmitted to the front end of the industrial chain. The venture capital circle often says that you should believe in the "power of belief," and now it is essentially a lack of the "power of belief."
There are also some industries that show a thriving trend. Li Hua, a supply chain manager of a famous manufacturing company in Foshan, told "Finance and Economics" that since 2023, the company's financial situation has continued to improve, and the number of corporate orders has grown well year-on-year in recent times. The company is working overtime to produce, and the company is still expanding production capacity because market demand is changing, but the market is still there, and matching production capacity with market demand is effective capacity.
In addition, investment in key areas such as infrastructure has grown rapidly, and the driving effect of large project investment is obvious.
According to data from the National Bureau of Statistics, in 2023, infrastructure investment (excluding electricity, heat, gas, and water production and supply industries) increased by 5.9%, of which water conservancy management industry investment increased by 5.2% year-on-year, public facility management industry investment decreased by 0.8% year-on-year, road transport industry investment decreased by 0.7% year-on-year, and railway transport industry investment increased by 25.2%.Why is Private Investment Sluggish?
The decline in the growth rate of private investment is mainly dragged down by the real estate sector. Data from the National Bureau of Statistics show that in 2023, national real estate development investment was 1,109.13 billion yuan, a decrease of 9.6% compared to the previous year; the area of new housing starts was 95.376 million square meters, a year-on-year decrease of 20.4%; and the area of completed housing was 99.831 million square meters, a year-on-year increase of 17.0%.
Looking at the data, from January to December 2023, the cumulative decline in indicators such as commercial housing sales area and sales volume, real estate development investment, and funds in place for real estate companies continued to widen compared to January to November. Among them, the sales area of commercial housing reached a new low since 2012, the sales volume reached a new low since 2016, and the scale of development investment set a new low since 2017.
Zhong Zhengsheng, a director of the China Chief Economists Forum and Chief Economist at Ping An Securities, and others believe that the decline in real estate investment is the main reason for the slide in private investment. Since 2022, China's real estate market has undergone a deep adjustment. The cumulative year-on-year growth rate of completed real estate development investment fell from 3.7% at the beginning of 2022 to -9.8% in November, with no signs of bottoming out. According to calculations, the investment in the real estate industry accounts for more than 60% of private investment in the tertiary sector. Therefore, the change in the growth rate of private investment in the tertiary sector largely reflects the condition of private real estate development investment (or private real estate companies). The continuous decline of the growth rate of private investment in the tertiary sector into negative territory, in stark contrast to the situation in the secondary sector, indicates that the contraction of real estate development investment is the main factor dragging down private investment.
On October 18, 2023, Sheng Laiyun, Deputy Director of the National Bureau of Statistics, stated at a press conference on the economic operation in the first three quarters that since the housing commercialization reform began in 2003, up to 2020, over nearly 20 years, the real estate industry has maintained high growth. During this period, the average annual growth rate of real estate investment was 19.9%, the average annual growth rate of commercial housing sales area was 10.8%, and the average annual growth rate of commercial housing sales amount was 20.3%.
"Some scholars say that China's real estate has achieved rapid development in less than 20 years, going through a process that some developed countries have taken hundreds of years. Therefore, the continuous rapid expansion of real estate has made an important contribution to maintaining high-speed and medium-high-speed growth of China's economy during that period," Sheng Laiyun pointed out. He also noted that like other industries, real estate cannot maintain high growth indefinitely. It is normal to experience adjustments at a certain stage, and such adjustments are beneficial for eliminating backward capacity, optimizing the structure, and promoting high-quality development of the real estate industry.
Lack of confidence is a significant factor affecting private investment. Chen Yifeng said, "From a subjective perspective, the withdrawal of foreign capital due to considerations of industrial chain safety has led to 'decoupling' and 'deglobalization' trends, which mainly impact private enterprises. Another subjective factor is the lack of a sense of security among private entrepreneurs, making them hesitant to invest. These factors all lead to insufficient confidence in private investment."
Lou Feipeng, a researcher at Postal Savings Bank of China, pointed out that behind the slow growth of private investment is the poor expectations of private economic entities, coupled with the fact that many private enterprises are export-oriented, and the lack of external demand is also an important reason for the slow growth of private investment.
Previously, "Finance and Economics" conducted a half-year survey on the development of private enterprises. Most of the dozens of companies surveyed reported difficulties and high costs in financing for private enterprises, but the financing issue is not only a problem of the financial system. Many private enterprises also pointed out that breaking down industry barriers for private enterprise development and breaking the monopoly in service industries are key to the healthy development of private enterprises.
"Finance and Economics" reporters contacted private enterprises in fields such as rice cookers, valves, industrial software, and smart energy, but all declined interviews regarding the situation of private investment.Since 2023, Caijing reporters have conducted research in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Pearl River Delta, and other areas, and have learned that the most fundamental desire of private enterprises is to create a good, fair, stable, and safe business environment. Only with stable expectations and a sense of security will enterprises dare to invest and innovate boldly.
For instance, the rule of law environment is the primary concern for private enterprises; followed by the expectation of policy stability to avoid significant impacts on business operations; there is a desire for fair and equal treatment of private enterprises, providing them with a level playing field. In addition, as private enterprises often cooperate with the government, and local governments are vigorously attracting investment, it is crucial for the government to be trustworthy in cooperation. Lastly, there is a thirst for a good public opinion environment and a stable attitude towards private enterprises.
Wang Jun, Chief Economist of Huatai Assets and a member of the China Chief Economists Forum, told Caijing reporters that in the short term, boosting the confidence of private enterprises requires strong policy supply, but in the long term, it requires a series of in-depth reform measures to provide private enterprises with a fair competitive environment and market access. In fact, many private enterprises do not yearn for preferential policies, but rather for fair treatment. Compared to tax and other preferential policies, providing private enterprises with a fair competitive environment is the most important.
Private Investment Revitalized
Caijing reporters have observed that in order to promote a turning point for private investment as soon as possible, the competent departments have successively launched a combination of policies.
On July 19, 2023, the "31 Measures for the Private Economy," officially titled "Opinions of the CPC Central Committee and the State Council on Promoting the Development and Growth of the Private Economy," was issued, hoping to invigorate the "spring water" of the private economy.
On July 24, 2023, Han Zhifeng, Deputy Director of the Investment Department of the National Development and Reform Commission, pointed out at a special press conference on promoting private investment that in response to the issues of not daring to invest, not knowing how to invest, and not being able to invest faced by private investment, the "Notice on Further Strengthening and Implementing the Promotion of Private Investment and Mobilizing the Enthusiasm of Private Investment" (hereinafter referred to as the "17 Measures for Private Investment") proposed corresponding policy measures. For example, to address the issue of unclear investment direction, a batch of key sub-industries that encourage private investment participation will be identified, a comprehensive list of projects attracting private capital will be sorted out, project promotion will be intensified, and private investment will be encouraged to actively participate; to address the difficulty of obtaining elements, a national key private investment project library will be established to guide relevant parties to increase financial support and element protection; to address the issue of access thresholds, a channel for reflecting and resolving private investment issues will be built, and efforts will be made to implement the requirement of equal treatment for state-owned and private enterprises from a systemic and legal perspective.
Industry insiders believe that the "17 Measures for Private Investment," which proposes 17 work measures from four aspects: clarifying work objectives, focusing on key areas, and improving the protection mechanism, is considered the first targeted policy support document to implement the "31 Measures for the Private Economy."
The establishment of a national key private investment project library, among other measures, has been implemented. On September 6, 2023, the "Private Investment Issue Feedback Column" was launched on the national online approval and supervision platform for investment projects. Wei Qijia, Director of the Industrial Economic Research Office of the Economic Forecasting Department of the National Information Center, said that this move has smoothed the channels for reflecting private investment issues, achieved a closed-loop operation of "collection-processing-feedback" for private investment issues, and can promote the improvement of policy measures and the soundness of the institutional system, creating a good policy environment for private investment.
Many interviewed experts believe that the dense introduction of policies to promote private investment is still quite "practical." For some prominent contradictions faced by the private economy, targeted solutions and measures have been proposed.Taking the "17 Measures for Private Investment" as an example, Yang Yongheng, Deputy Dean of the China Development Planning Research Institute at Tsinghua University and Professor at the School of Public Management, told Caijing that first, it is required to select projects with clear investment return mechanisms and good profit levels from major national projects and projects to fill gaps for promotion to private capital, which in essence releases a huge high-quality market space for private enterprises; second, the proposal to establish a "Key Private Investment Project Library" with strict selection standards for inclusion, the fact that a project can be included in the library itself indicates that it is in line with the national development direction, reducing the project search costs for private capital; third, government departments recommend key private investment projects from the library to financial institutions, which also provides credit support for project financing. "It's not just financial support, for projects in the key private investment project library, they will also be included in the major project land security mechanism for support."
Lou Feipeng believes that the "17 Measures for Private Investment" specifically support private capital participation in six major areas: "transportation," "water conservancy," "clean energy," "new infrastructure," "advanced manufacturing," and "modern facility agriculture." To some extent, this also points out the key development directions of the future market for private capital with investment capacity but with a wait-and-see attitude, "and it is expected to have a good policy effect later on."
At the same time, there are also voices in the market that current private investment has become "immune" to stimulus policies, and it is difficult to mobilize the spontaneous upward scale of private investment solely by the dense introduction of policies. Therefore, the implementation and execution effects of private investment support policies have become crucial. How to ensure that the policy does not "deform" during implementation?
In addition to simply encouraging, the "17 Measures for Private Investment" also proposes some specific measures to strengthen government responsibility and create a good environment for private investment. Yang Yongheng gives an example, such as establishing a column for reflecting private investment issues, opening channels to listen to the voices of private enterprises; establishing a private investment work scheduling and evaluation mechanism, and strengthening the work responsibilities of various levels of departments; for common problems encountered by private investment, requesting relevant departments to study and propose specific measures, and implementing the requirements of equal treatment for state-owned and private enterprises from the system and legal aspects... "The key to a good policy lies in its implementation. With a clear policy direction and strengthened work responsibilities, private investment will definitely yield results."
As a package of policies is gradually implemented, new institutions are also expected to exert further efforts.
On September 4, 2023, as a specialized working institution to promote the development and growth of the private economy, the National Development and Reform Commission established the Private Economic Development Bureau within its structure to strengthen the overall planning and coordination of policies in related fields, and to promote the early implementation and effectiveness of various major initiatives.
The main responsibilities of the Private Economic Development Bureau are: to track and analyze the development status of the private economy, to coordinate and organize the formulation of policies and measures to promote the development of the private economy, and to formulate policies to promote the development of private investment. Establish a normalized communication and exchange mechanism with private enterprises, coordinate the resolution of major issues in the development of the private economy, and coordinate support to enhance the international competitiveness of the private economy.
Pan Helin, Co-Director and Researcher at the Center for Digital Economy and Financial Innovation of the International Business School at Zhejiang University, told Caijing that the establishment of the Private Economic Development Bureau conveys the central government's support for the development and growth of the private economy.
Yang Weimin, Vice Chairman of the China Center for International Economic Exchanges and former Deputy Director of the Office of the Central Financial and Economic Affairs Leading Group, also stated to Caijing that to reverse the weak expectations of private enterprises and boost the confidence of the private economy, short-term policy support is needed, but more importantly, long-term theoretical supply, institutional supply, and policy supply are required, which is the key. This involves further improving the property rights system, enhancing the stability, continuity, and consistency of policies, breaking down the hidden barriers to private economy access, improving the legal and commercial communication mechanism, and promoting a series of related reforms.In Chen Yifeng's view, on the basis of standardization, it is appropriate to relax restrictions on the scale of private equity funds. "Regulation of the capital market's standardization and legality is possible, but there is no need to set limits on specific scales. If small-scale funds are not allowed, it will restrict investment development and also cause certain adverse effects on the industry."
Furthermore, Yang Yongheng added that it is also necessary to convey clear signals to officials at all levels of localities, so that they understand how to professionally interact with private entrepreneurs and establish a clean and amicable relationship between government and business. "Instead of being afraid to deal with private enterprises, which in fact leads to unfairness or discrimination against them, it is important to interact with private entrepreneurs in an open and sincere manner, to take the initiative and provide services proactively, and at the same time, to foster a positive public opinion atmosphere that respects private enterprises and the innovative spirit of private entrepreneurs."
In Mou Ying's opinion, although the current private investment market is facing a "freeze," to some extent, it is also a kind of healthy market clearance. After full competition, teams without differentiation and competitiveness will exit, and the private investment market will begin to warm up. "The current market is a bit like 'a big ship is hard to turn around,' but since the ship has already started to slow down and the turning process has begun, it will eventually turn around."
In 2024, all sectors of the market are looking forward to the implementation of policies that encourage private investment, using market methods and reform measures to stimulate the vitality of private investment and enhance the confidence of private enterprises in long-term investment.
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