China’s Talk of ‘Two Unwaverings’ Reveals Private Sector Fears

(Bloomberg) -- Chinese state media can act as a mirror for official anxiety. The things they say are going fine are sometimes the things they’re most worried about.

Take the flurry of Communist Party propaganda this week professing China’s commitment to the “two unwaverings.” The phrase -- meaning unwavering support for private companies, as well as state-owned ones -- has proliferated since Chinese President Xi Jinping employed it earlier this week in a letter to entrepreneurs. The party’s People’s Daily newspaper, Guangming Daily journal and the influential Study Times have all rolled out the “two unwaverings” in recent days.

The articles come amid concern that the private sector has borne the burden of the government’s campaign to close down funding channels and curb systemic risk from growing debt. Xi’s recent expressions of support for state-owned enterprises have also fed the perception that the $25 trillion state sector will fare better if the country’s economic slowdown deepens.

The balance between state control and market forces has been politically sensitive since the communists took power in 1949. But squaring that circle has required a greater degree of ideological dexterity since paramount leader Deng Xiaoping rebranded the economy as “socialism with Chinese characteristics” and embraced the market 40 years ago.

Deng’s successor, former President Jiang Zemin, later developed the “three represents” to justify his own decision to admit capitalists into the party. Then, after the global financial crisis led then-President Hu Jintao and Premier Wen Jiabao to pump $600 billion of stimulus into the economy through state-run industrial giants, the government had to counter arguments that the “state advances as the private sector retreats.”

The answer was the “two unwaverings.” In other words, we can do both.

Xi, who also used the phrase last month during a trip boosting state industry, is no stranger to the debate. As he was rising up the provincial ranks in the 2000s, China’s leadership was vexed by whether to push market reforms harder or pull them back. Xi chose both, coining what he called the “two hands” theory to explain that 18th century economist Adam Smith’s “invisible hand” could work with the hand of the state.

This week, the debate has played out in action, as well as rhetoric. Bloomberg News reported Tuesday that the People’s Bank of China planned to earmark 10 billion yuan to provide credit support for debt sales by private enterprises. The next day, carmaker China FAW Group Co. received a 1 trillion yuan ($144 billion) line of credit from 16 banks Wednesday, demonstrating access to cash that state-owned firms have.

The fact that the government is still reassuring private companies of unwavering support highlights an unsettled political question at the center of the world’s second-largest economy. One side of the economy has clearly wavered more than the other.

©2018 Bloomberg L.P.