It's starting to look like China regrets its private-enterprise crackdown

Chinese President Xi Jinping.

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• China this week held a key meeting that charts its economic direction for the next year.
• The official readout hints at "remorse" that overzealous policy has hit economic growth, one analyst says.
• China's economy is struggling amid a real-estate crisis and Beijing's private sector crackdown.

Since 2020, China has been cracking down on private enterprise, including the tech and tutoring sectors. Authorities have also cracked down on debt risks in the real-estate market, precipitating an industry slump and crisis.

Investors have been spooked by the speed and force of implementation, which has wiped billions of dollars off the market.

Now, it appears that even the Chinese government thinks it has gone too far and too fast in implementing regulatory policies that were meant to rein in risks and monopolistic behavior.

China held its annual Central Economic Work Conference, or CEWC, on Monday and Tuesday. It was attended by all of the country's top leaders, including President Xi Jinping and Premier Li Qiang.

A document released after the conference sets the agenda for China's economy — the second-largest economy in the world — for the next year. And strikingly, this year's readout acknowledges that China needs to prioritize economic development.

"Next year, we must persist in seeking progress while maintaining stability, promote stability through growth, and establish the new before breaking the old," states the meeting's official readout.

The wording in this document suggests "hints of remorse at overzealous growth-negative policy implementation," Rory Green, the chief China economist at GlobalData.TS Lombard, wrote in a note on Wednesday.

"The emphasis on the economy was followed by 'prioritizing development before addressing problems,' alongside rhetoric that linked national security to maintaining a stable growth rate," wrote Green. This suggests official recognition of the difficulties facing the country, he added.

The CEWC's statement came after the Politburo — China's top political leadership — made the same assessment Friday, saying the country has to put new plans and policies in place before taking aim at existing issues.

This is significant because it marks the first time the Politburo has said that new plans and policies need to be established before old ones are abolished, Song Xuetao, the chief macroeconomic analyst with Beijing-based TF Securities, wrote in a note last week.

It also means Beijing is likely to pursue a more cautious approach to implementing new policies that could destabilize markets in the short term.

Despite China's acknowledgement that it might have gone too far in implementing policies, the country isn't changing its economic objectives, focusing on higher quality growth, increased security, and innovation, Green said.

Market watchers are also disappointed that the meeting did not announce stimulus to boost consumption.

Green — who predicts an L-shaped recovery for China — said he expects the Chinese government's spending in the first quarter of 2024 to boost the economy, but also foresees "the amount being insufficient to deliver meaningful economic acceleration."

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