1 Official media stress that Xi has ‘always supported private enterprises’
March 2
PRC state mouthpiece Xinhua published a nearly 8,000-character article on its front page titled, “I Have Always Supported Private Enterprises — A Record of Comrade Xi Jinping’s Efforts to Promote the Development of the Private Economy” (“我是一貫支持民營企業的” ——習近平同志關心推動民營經濟發展紀實). Party mouthpiece People’s Daily would publish the same article on its front page the next day.
The article claimed that Xi Jinping has always attached great importance to the private economy and shown care for private entrepreneurs since he was a local official. The article also highlights examples and remarks from Xi’s tenure at the local and central government levels that demonstrate his consistent support for private enterprises.
PBoC backs financing for private enterprises
Feb. 28
The People’s Bank of China, the All-China Federation of Industry and Commerce, the National Financial Regulatory Administration, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange held a joint symposium on financial support for the high-quality development of private enterprises.
At the symposium, PBoC governor Pan Gongsheng said that the PRC’s financial regulatory bodies and institutions have attached great importance to providing financial support for the private economy. He added that financing for the private economy has increased in volume, expanded in scope, and decreased in cost. For instance, Pan said that the average interest rate on newly issued loans to privately controlled enterprises was 3.56 percent in January 2025, while the financing cost for private enterprises in the bond market reached a historically low level during the same period.
Pan further stated that the PBoC will guide financial institutions to increase their financial resource input into the private economy and effectively implement a moderately accommodative monetary policy. This would ensure that private enterprise financing costs will remain low for a prolonged period.
Pan Gongsheng also urged financial institutions to appropriately adjust their risk appetite in terms of customer access, credit authorization, and risk management. Those institutions should also treat enterprises of all ownership types equally.
Backdrop
Feb. 17
Xi Jinping held a symposium with private entrepreneurs in Beijing where he promoted the importance of developing the private economy.
Feb. 28
U.S. Treasury Secretary Scott Bessent said Mexico proposed matching U.S. tariffs on China. In an interview with Bloomberg TV, Bessent said, “I think it would be a nice gesture if the Canadians did it also so in a way we could have fortress North America from the flood of Chinese imports that’s coming out of the most unbalanced economy in the history of modern times.”
March 4
President Donald Trump’s 25 percent tariffs on goods from Mexico and Canada, as well as an additional 10 percent tariff on Chinese goods, went into effect. The U.S. has increased tariffs on all Chinese imports to 20 percent since Trump took office in January 2025.
Our take
1. Official mainland media’s front page article on Xi Jinping’s “consistent” support of the private economy is likely meant to emphasize Beijing’s desire to renew focus on developing private enterprises ahead of the Two Sessions in early March. We previously analyzed that the CCP authorities are promoting the private sector at this time because the Chinese economy is facing severe problems and challenges. Those problems and challenges are only likely to worsen going forward as the Trump administration hikes tariffs on Chinese imports and Beijing fails to come up with adequate solutions to reverse China’s economic decline.
The private economy has always played a key role in China’s economic development. Per the CCP’s acknowledgment, private enterprises contribute over 50 percent of China’s tax revenue, over 60 percent of the GDP, and over 80 percent of urban employment. State media has also noted that private enterprises contribute over 70 percent of China’s technological breakthroughs, over 80 percent of so-called “little giant” companies (small and medium-sized enterprises with specialized expertise and innovation), and over 90 percent of high-tech businesses in the country. As internal and external challenges mount for the PRC, the central government needs a healthy and growing private sector to stabilize the overall social and political situation in China. The Xi leadership’s current focus on backing the private economy is a pragmatic move akin to the CCP shifting from class struggle to economic development after the Cultural Revolution to address regime stability.
Xi Jinping was previously less supportive of the private sector as he prioritized strengthening the Party and factional struggle to consolidate power and solidify his paramount position. In promoting “the Party leads everything,” the Xi leadership oversaw the expansion of the state sector at the expense of the private sector (國進民退). Outspoken, “politically incorrect” private entrepreneurs found themselves running afoul of the authorities, including prominent rural entrepreneur Sun Dawu (sentenced to 18 years in jail in 2021 over multiple charges), influential businessman Ren Zhiqiang (sentenced to 18 years in jail in 2020 over multiple charges), and Alibaba’s Jack Ma (disappeared from the public eye while his Ant Group was fined over 7 billion yuan). Meanwhile, local officials struggling to boost local finances sought to extract from private businesses through “deep-sea fishing” style law enforcement (遠洋捕撈式辦案) and other tactics.
Squeezed by the local and central government, the private sector suffered a sharp decline in business confidence and a major contraction in investment. In 2024, private fixed asset investment amounted to just 25.8 trillion yuan, a 32.5 percent drop compared to 38.2 trillion yuan in 2017 (or when theories that Beijing was abandoning the private sector first emerged). The sharp drop off in private investment also hints at a rapidly shrinking base of private businesses from which the CCP authorities can draw revenue.
2. The PBoC and other financial regulatory authorities’ symposium on financial support for private enterprises seems to suggest that the central government is keen on making a strong push to back the private sector. On closer examination, however, the move seems more symbolic than substantive, with limited feasibility for implementation.
In the aftermath of China’s real estate bubble collapse, financial institutions have sharply tightened credit, facing a scarcity of qualified, high-quality private enterprise borrowers. For highly leveraged private firms with urgent liquidity needs, low profitability, and elevated risk profiles, securing financing remains an uphill battle. Without high-quality assets to offer as collateral, these private enterprises will find it nearly impossible to obtain financing from cautious lenders despite the central bank’s directives for financial institutions to increase lending to private businesses.
As of March 3, China’s 10-year government bond yield is below 1.7 percent, signaling a severe shortage of investable, high-quality assets. This so-called “asset drought” underscores the increasingly limited opportunities for financial institutions to deploy capital into safe and attractive investment vehicles.
3. Xi and the CCP seem to be bowing to economic realities in highlighting the importance of private enterprises. However, this does not mean that they are embracing genuine economic liberalization or minimizing the Party’s control over the private economy. If anything, Xi and the CCP want private enterprises to closely follow the central government’s directions on economic matters rather than pursue whatever they believe is the best way for themselves. Notably, Xi urged private entrepreneurs at the Feb. 17 symposium to align their thoughts and actions with Party Central’s assessment of domestic and international conditions, as well as its economic policies and deployments. Meanwhile, the Politburo meeting on Feb. 28 said that China’s economic agenda for 2025 must be guided by “Xi Jinping Thought” and Party Central.
Two fundamental problems plaguing the PRC’s inability to revive the economy are Xi and the CCP’s insistence on their absolute leadership over everything and Communist China’s confrontational posture on the world stage (especially the PRC’s earlier “wolf warrior diplomacy, Beijing’s support of Moscow during the Russia-Ukraine war, and the CCP’s refusal to renounce an armed takeover of Taiwan). Unless there are shifts in the underlying issues, China’s private sector development will continue to be stifled.
2 Analyzing Li Qiang’s 2025 government work report
The 2025 Two Sessions kicked off on March 4 and March 5. During the Third Session of the 14th National People’s Congress on March 5, PRC premier Li Qiang delivered the annual government work report on behalf of the State Council.
Li first reviewed the CCP authorities’ achievements over the past year. He noted that the government overcame challenges, maintained overall economic stability and steady progress, as well as successfully met the 2024 economic and social development goals under the strong leadership of Party Central with Comrade Xi Jinping at the core. Li added that the past year’s achievements were fundamentally due to the “helmsman” Xi and the scientific guidance of Xi Jinping Thought.
Li also stressed that the government’s work must be guided by Xi Jinping Thought, as well as fully adhere to the spirit of the 20th Party Congress and the second and third plenary sessions of the 20th Central Committee.
In concluding the delivery of the work report, Li Qiang urged everyone to unite more closely around Party Central with Comrade Xi Jinping at the core and strive to achieve the PRC’s economic and social development goals and tasks for 2025.
The work report contained the following noteworthy points:
Economic stability and growth in 2024
- GDP grew 5 percent to 134.9 trillion yuan, reflecting “steady expansion.”
- Employment and inflation “remained stable,” with 12.56 million new urban jobs created and consumer prices rising 0.2 percent.
- Balance of international payments stayed “largely even,” with foreign trade reaching a record high and foreign exchange reserves exceeding $3.2 trillion.
- Per capita disposable income grew by 5.1 percent in real terms and overall social stability was “maintained.”
- Grain production surpassed 1.4 trillion jin (about 700 million tons).
- High-tech manufacturing and equipment manufacturing added value increased by 8.9 percent and 7.7 percent respectively.
- Annual production of new energy vehicles exceeded 13 million units.
Major achievements of 2024
- Counter-cyclical adjustments were strengthened and targeted measures were implemented to address economic downturn pressures. Measures included reducing the reserve requirement ratio and policy interest rates twice, lowering social financing costs, and stabilizing the real estate market.
- Reforms and market opening were deepened, with efforts to eliminate regulations hindering a unified national market, advance state-owned enterprise reforms, and improve the business environment for private enterprises. Cooperation under the Belt and Road Initiative was further promoted.
- Innovation was vigorously promoted to drive development. The construction of major scientific and technological infrastructure systems was strengthened, with manufacturing investment growing by 9.2 percent. The digital economy saw accelerated growth, with rapid advancements in artificial intelligence, smart manufacturing, and the industrial internet.
- A five-year action plan for new urbanization was introduced and the permanent urban population rate rose to 67 percent.
- Social development and public welfare were actively advanced to enhance people’s well-being.
- Government capacity-building and governance innovation were strengthened, and social harmony and stability were maintained.
- China’s “great power diplomacy” achieved new progress. Xi Jinping and other national leaders made multiple international visits where they promoted global governance reform and contributed to world peace and development.
Challenges and issues faced in 2024
- International
- The world saw accelerated changes unseen in a century. The more complex and severe external environment could exert greater pressure on China’s trade and technological sectors.
- Weak global economic momentum, rising unilateralism, and protectionism disrupted the stability of global industrial and supply chains, creating obstacles to international economic circulation.
- Geopolitical tensions remained high and international market volatility risks were increased.
- Domestic
- There was insufficient effective demand and particularly weak consumer spending.
- Some enterprises faced difficulties in production and operations, with the issue of overdue payments remaining relatively prominent.
- The public faced pressure in terms of employment and income growth.
- Some local governments faced fiscal difficulties.
- Efforts to resolve social conflicts and prevent risks still need to be strengthened.
- There is room for improvement in government efficiency and the capacity for law-based administration.
- There was slow policy implementation and results that fell short of expectations.
- There were issues of disorderly conduct, inaction, and incompetence among some officials, with corruption still prevalent in certain regions and sectors.
Key economic targets for 2025
- The annual GDP growth target is set at around 5 percent.
- The urban surveyed unemployment rate should be around 5.5 percent.
- Consumer price index growth should be maintained at around 2 percent.
- The international balance of payments should be basically balanced.
- Promote the integration of technological innovation and industrial development.
- Stabilize the real estate and stock markets.
- Prevent and mitigate risks in key sectors.
Economic policies and key work arrangements for 2025
- Implement a proactive fiscal policy:
- Keep the deficit rate at around 4 percent, with a deficit scale of 5.66 trillion yuan (up 1.6 trillion yuan from a year ago).
- Set the general public budget expenditure scale at 29.7 trillion yuan, up 1.2 trillion yuan from 2024.
- Issue 1.3 trillion yuan in ultra-long-term special treasury bonds, up 300 billion yuan from 2024.
- Issue 500 billion yuan in special treasury bonds to support capital replenishment for large state-owned commercial banks.
- Allocate 4.4 trillion yuan in local government special bonds, up 500 billion yuan from 2024.
- Set the total scale of new government debt to 11.86 trillion yuan, up 2.9 trillion yuan from 2024.
- Implement a moderately loose monetary policy:
- Make timely reductions in reserve requirements and interest rates to maintain ample liquidity.
- Maintain the basic stability of the renminbi exchange rate at a reasonable and balanced level.
- Implement a strategy to expand domestic demand:
- Allocate 300 billion yuan in ultra-long-term special treasury bonds to support trade-in programs for consumer goods.
- Promote the development of new quality productive forces and build a modern industrial system.
- Support the development of high-tech industries and foster future industries.
- Deepen education reform and improve the quality of education.
- Uphold and implement the “two unwaverings” (“Unwaveringly consolidate and develop the public sector” and “unwaveringly encourage, support, and guide the development of the non-public sector”)
- Advance the construction of a unified national market.
- Deepen reforms in fiscal, taxation, and financial systems.
- Stabilize foreign trade and foreign investment.
- Deepen financial reform and enhance the internationalization of the RMB.
- Promote the stabilization and recovery of the real estate market.
- Prudently address local government debt risks.
- Actively prevent risks in the financial sector:
- Maintain a high-pressure crackdown on illegal financial activities.
- Strengthen risk mitigation resources such as the deposit insurance fund and financial stability guarantee fund.
- Improve contingency plans to address external risk shocks.
- Optimize urban infrastructure and promote integrated urban-rural development.
- Improve land policies and enhance land use efficiency.
- Strengthen the social security system and advance modern social governance:
- Raise the minimum standard of basic pensions for urban and rural residents by an additional 20 yuan, and appropriately increase basic pensions for retirees.
- Safeguard national security and enhance public safety management capabilities.
- Fully implement Xi Jinping Thought on a strong military, adhere to the Party’s absolute leadership over the military, and thoroughly implement the Central Military Commission Chairman Responsibility System.
- Adhere to “One Country, Two Systems” and support Hong Kong and Macau’s integration into national development.
- Resolutely oppose “Taiwan independence” separatism and interference by external forces, and promote peaceful development of cross-strait relations.
- Adhere to an independent and peaceful foreign policy. Oppose hegemonism and power politics, as well as all forms of unilateralism and protectionism.
Our take
1. Li Qiang’s 2025 government work report continues the CCP’s long-standing practice of cherry-picking “achievements” and “spinning tragedy into victory.” For instance:
- The work report claimed that China saw “overall economic stability” in 2024 and the GDP growth target was met. However, the CCP’s own data and other indirect economic indicators left many observers deeply skeptical about the official growth rate. We previously estimated that China’s actual GDP growth rate was 3.6 percent, or much lower than the official figure of 5 percent.
- The work report claimed that China’s balance of international payments stayed “largely even” in 2024. However, the State Administration of Foreign Exchange noted in February that China’s capital and financial account (including net errors and omissions for Q4 2024) recorded a deficit of $441.6 billion last year, or more than double the $215.1 billion in 2023.
- The work report mentions the 0.2 percent rise in consumer prices in 2024, but fails to note the drop in the producer price index by 2.2 percent (reflecting economic contraction).
- The work report claimed that the business environment for private enterprises improved in 2024. However, it omitted the net outflow of $168.4 billion of foreign direct investment in 2024, the highest level since records began in 1990.
2. Li Qiang’s work report offers no fresh approaches regarding how the CCP authorities plan to revive the economy. The measures that are planned for 2025 have thus far proved to be insufficient over the past year.
Details in the work report indicate that Beijing is relying heavily on increasing debt to achieve its growth target. However, large-scale government borrowing will drain liquidity from the banking system and capital markets, place downward pressure on the renminbi, and increase the risk of capital outflows. This could ultimately lead to heightened systemic financial risks.
China’s small and medium-sized banks already face substantial risks. For instance, mainland media Huaxia Times reported on March 1 that Shanxi Bank’s net profit for 2024 fell by 93.87 percent year-on-year to just 51 million yuan, or way below levels in 2022 (the last pandemic year). Shanxi Bank’s non-performing loan ratio also rose by 0.76 percentage points to 2.50 percent, exceeding 2022 levels. The bank attributed these poor results to the merger of four high-risk rural banks during the year.
According to a Feb. 12 Reuters report, at least 290 rural banks and rural cooperatives were merged into larger regional banks in 2024. As of mid-2023, there were around 3,700 rural and small banks in China with total assets of 57 trillion yuan. While risks in the small and medium-sized bank sector are currently concealed, they could flare up at any time and trigger severe financial crises as local governments continue to issue mountains of debt and drain bank liquidity.
3. The challenges for the PRC outlined in Li Qiang’s government work report are likely to intensify given the CCP authorities’ limited economic rescue measures and struggles to improve governance. In particular, issues such as the “more complex and severe external environment,” “insufficient effective demand,” and “disorderly conduct, inaction, and incompetence” among officials will likely worsen amid rising geopolitical tensions and increased U.S. tariffs on Chinese products.
4. The political positioning and emphasis on Xi Jinping’s leadership in Li Qiang’s government work report clearly indicates that Xi retains a firm grip on power and dispels persistent rumors that he has “lost power,” has his power divided up, or is imminently leaving office.
