The Chinese central government is focusing on improving the development environment of the private economy and alleviating the financing difficulties of private enterprises. At a private enterprise symposium held in early November, President Xi Jinping pointed out very specifically on the improvement of the implementation of six aspects of policy initiatives to improve private enterprises, which include (1) reducing the burden of corporate taxes and fees; (2) solving private enterprises' financing difficulties; (3) creating fair competition environment; (4) improving the implementation of policies, and the loans to private enterprise should not be recalled or stopped arbitrarily; (5) building a new type of fresh political and business relationship; (6) protecting the personal and property safety of entrepreneurs.

With the central government has made such detailed requirements, all departments, from financial departments to local governments naturally need to improve the development environment of private enterprises as a current key task, and introduced different policies for implementation. As the policy actions of various departments are quite concentrated, it is estimated that in the short term, a minor "movement" will be formed to improve the environment of private enterprises.

What issues do private enterprises wish the government to solve? After conducting sample surveys among corporate and government customers, Anbound found out that from the perspective of private enterprises, it is mostly hoped that the government would do the following: reducing taxes; coordinating in solving the financing difficulties, providing financing guarantees; reducing the operating costs of environmental protection; solving the triangular debts owed by the government; improving the business environment and building fair, competitive platform; providing land support; supplying investment convenience; improving approval efficiency; maintaining policy stability; and state-owned enterprises withdrawing from some competitive industries. Some enterprises also reflected that a good business environment is one that the local government does not interfere in private enterprises indiscriminately, nor should the enterprises be forced to attract investment, and administrative intervention should not be forced on private enterprises to attract business; there should also not be forced to expand the corporate loans because of development pressures.

The concerns of many private enterprises have actually been quite common in the past; this also reflects the current mentality of private enterprises. If the past issues and problems are resolved, it would be considered to be good enough, but the private enterprises do not give any thoughts on future development. What we have to point out is that the focus of the existing policy is not only to solve those things in the past but to do well in the future. If the original intention of the policy is contrary to the result, then the current support policy will be withdrawn, or no one will enforce it in the future; these are all the likely possibilities.

In analyzing the recent policies, Anbound's chief researcher Chen Gong pointed out that directly focusing on banks as the source of the policy might be a mistake in itself; such way of thinking is more of an academician. According to Chan Kung, the effectiveness of the policy depends on the situations. The contradiction focuses on the banks and directly holds the main source of the funds; this was when the policy was useful, like how Japan controlled the real estate boom. Yet if it is the expansionary policy, it would not be useful to control the banks as the main sources, as the flow of funds cannot be controlled, and there is no way to know where the money is going. This is the reason why we have repeatedly analyzed the central bank's inability to aim for precision.

So, where should the current policy focus be placed?

Chan Kung's answer is "expanding the market". A few years ago, Chen Gong predicted that China would go to the point of "major release" (large-scale stimulus). At that time, there were very few people who understood and agreed with this; most feel that this was impossible under the policy of cutting overcapacity, reducing excess inventory and deleveraging. Although the macroeconomic situation and policies have seen huge changes, and the policy is constantly relaxed, many still do not understand the policy of relaxation; they think the stimulus would be sufficient enough. Chan Kung stressed that we must know that for Chinese private enterprises, money is a problem, but the bigger problem is the market. If there is money but without the market, it will definitely not work, and market problems would not be solved with money. Therefore, we differ from many opinions; we believe that the tax reduction policy has a limited effect on solving the problems of private enterprises. The effect is equivalent to unilateral stop loss, which inhibits government consumption, but it does not help the market.

Chan Kung further explained that policy is only one aspect of the problem. Another important aspect for the Chinese economy is the use of policies to support the market, tap into the market potential, and expand domestic market space. Even in a full market economy country, the economy has different cycles of austerity and expansion. From the perspective of future policy development, the focus should be on expanding the market. For enterprises, making money is more important than receiving money from the government. It should also be emphasized that in the absence of market expansion support if the emphasis is placed on providing funds to enterprises, the funds will only flow to real estate and external markets, which will cause further depreciation of the RMB and increase capital outflows. Once this happens, it is likely that the policies would stop immediately.

Final analysis conclusion:

The policy for improving the development environment of the private economy has taken shape, and various departments and localities have begun to take action to tilt resources to private enterprises. However, the policy focus should not only be on providing funds to private enterprises, but should emphasize the expansion of the domestic market, and use the expansion of market space to guide private enterprises to strengthen the function and to make money, rather than waiting for help.