MNI: China's Private Investment Support Faces Local Challenges

Beijing’s latest policy package aimed at addressing a three-year decline in private investment will increase non-state participation, but the measures face obstacles at the local level, advisors told MNI, noting that long-term mechanisms are still needed to protect private assets and boost investor confidence.

Lu Donghong, associate research fellow at the Chongyang Institute for Financial Studies at Renmin University, said Beijing’s recently announced 13 measures – which, for the first time, allow private companies to hold stakes above 10% in state-driven projects – represent a shift that enables non-state firms, such as Jiuli Group and Shandong Weiqiao in the nuclear-power sector, to become meaningful shareholders in major national projects, whereas previously they typically participated only as suppliers.

The measures cover projects in areas including railways, nuclear and hydropower generation, cross-region electricity transmission, and oil and gas pipelines, as well as emerging industries and the service sector.

Despite relatively long project cycles, large government-led projects could entice private firms with stable cash flows and a return rate of 3-5%, a think tank researcher told MNI, noting that such returns remain attractive amid an ongoing interest-rate downturn. Officials in Beijing could go further with market-oriented reforms, such as introducing more price flexibility on public services like train tickets. Prices could also be allowed to float within a wider government-guided range, potentially boosting returns for investors, the researcher added.

Private investment has fallen for three consecutive years since 2022, weighed down by trade tensions, weak domestic consumption, and a prolonged property downturn. Fixed-asset investment in the private sector shrank 4.5% y/y in the first 10 months, while state-sector investment rose 0.1%, official data showed.

HIDDEN BARRIERS

Despite the clear policy statements at the central level, advisors remain concerned about hidden local-level barriers. Private enterprises often face discrimination during the approval process, Lu said, noting that sectors such as the low-altitude economy and aerospace are particularly affected.

Structural disadvantages in accessing key resources such as land and credit also persist. Lu said the measures’ emphasis on unified approval standards, transparent procedures, and a national platform for credit allocation to private enterprises could help.

The researcher noted that while market entry barriers have been reduced in some cases, operational restrictions remain, especially in the service sector, where stronger coordination across multiple departments – including environmental protection, sanitation, public security, quality inspection, and fire safety – is required to ensure fair treatment for private firms.

Gong Liutang, director at the Institute for Advanced Study at Wuhan University, said underinvestment in the service sector – evidenced by a 5.3% y/y decline compared with a 5.3% increase in services consumption in the first 10 months – should improve next year, supported by measures removing unreasonable entry barriers, particularly in producer services, and policies expanding high-quality supply of goods and services to boost consumption. (See MNI: China To Bolster Service Consumption With Greater Supply)

However, Gong stressed that investor confidence will ultimately depend on long-term mechanisms ensuring consistent implementation of the new measures and the recently passed Private Economy Promotion Law. 

He highlighted the need for institutionalised protection of private companies’ and entrepreneurs’ assets, improvements to corporate governance when partnering with state-owned enterprises, and clear exit mechanisms for private investment.

In April, China passed its first law dedicated to supporting the private sector and reinforcing its role in the economy.