Private Businesses Built Modern China. right now the Government is actually Getting Involved.

HONG KONG — The comments were couched in careful language, although the warning about China’s direction was clear.

China grew to prosperity in part by embracing market forces, said Wu Jinglian, the 88-year-old dean of pro-market Chinese economists, at a forum last month. Then he turned to the top politician within the room, Liu He, China’s economic czar, as well as said “unharmonious voices” were right now condemning private enterprise.

“The phenomenon,” Mr. Wu said, “is actually worth noting.”

Mr. Wu gave rare official voice to a growing worry among Chinese entrepreneurs, economists as well as even some government officials: China may be stepping back through the free-market, pro-business policies of which transformed This kind of into the earth’s No. 2 economy. For 40 years, China has swung between authoritarian Communist control as well as a freewheeling capitalism where almost anything could happen — as well as some see the pendulum swinging back toward the government.

State-controlled companies increasingly account for growth in industrial production as well as profits, areas where private businesses once led. China has stepped up regulation of online commerce, real estate as well as video games. Companies could face higher taxes as well as employee benefit costs. Some intellectuals are calling for private enterprises to be abolished entirely.

The debate has gone all the way to the top. On Thursday, President Xi Jinping, the country’s leader, sought to reassure private entrepreneurs of which Beijing would likely still support them. although he also offered a full-throated defense of the country’s big state-controlled companies, which many economists believe crowd out private businesses.

“Such statements as ‘there should be no state-owned enterprises’ as well as ‘we should have smaller-scale state-owned enterprises’ are wrong as well as slanted,” Mr. Xi said during a visit to a facility owned by China National Petroleum Corporation, a major state-controlled oil company.

China’s leadership turned to entrepreneurs within the late 1970s, after the government had led the economy to the brink of collapse. Officials gave them special economic zones where they could open factories with fewer government rules as well as attract foreign investors. The experiment was an unparalleled success. When extended to the rest of the country, This kind of created a growth machine of which helped make China second only to the United States in terms of economic heft.

Today, the private sector contributes nearly two-thirds of the country’s growth as well as nine-tenths of brand-new jobs, according to the All-China Federation of Industry as well as Commerce, an official business group. So pressures on private businesses could create serious ripples.

“The private sector is actually experiencing great difficulties right right now,” wrote Mr. Hu, the retired minister, who as the son of a former top Communist Party leader is actually often a voice for reform in China, in an essay posted online last Thursday. “We should try our best not to replicate the nationalization of private enterprise within the 1950s as well as the state capitalism.”

The Chinese president, who has sought greater party control over the military, the media as well as civil society, is actually right now focusing on business. The government is actually considering taking direct stakes within the country’s big internet companies. Regulators have stepped up existing requirements of which businesses, even foreign ones, give Communist Party committees a greater role in management.

Leftist scholars, bloggers as well as government officials are providing theoretical as well as practical support. In January, Zhou Xincheng, a professor of Marxism at Renmin University in Beijing, declared of which private ownership should be eliminated.

Last month, Wu Xiaoping, then an unknown blogger, wrote of which the private sector should be ended right now of which This kind of had accomplished its historic mission of achieving growth. Mr. Wu’s blog went viral.

Also last month, Qiu Xiaoping, a vice minister of human resources as well as social security, urged “democratic management” of private enterprises, saying of which they should be jointly run by business owners as well as their employees.

Some of the government’s efforts stem through necessity. Beijing must find ways to pay for increasing ambitious social programs like universal health care. This kind of is actually also trying to curb problems caused by business run amok, like pollution as well as poor treatment of workers, as well as years of companies dodging taxes.

although entrepreneurs say the pace of change in Chinese taxes — already among the earth’s highest — gives them little time to prepare. For example, next year China will step up efforts to collect social-benefit payments as well as shift the way they are calculated, resulting in higher costs. Stricter social security tax collections could erode China’s corporate profits by 2.5 percent, according to Lu Ting, an economist at Nomura Securities in Hong Kong.

of which could particularly hurt smaller companies, which tend to be privately owned as well as often have thin profit margins. Chinese officials have promised to cut overall taxes, although the details have been scant.

Beijing’s efforts to wean the economy through its dependence on borrowing have made This kind of harder as well as more expensive for many private businesses to get money. At the same time, the state-owned enterprises have little problem getting brand-new loans. Even Li Keqiang, China’s premier, recently acknowledged what he called the “hidden line” between public as well as private access to bank loans.

Some struggling entrepreneurs are doing what was once considered unthinkable: selling out to the state. So far This kind of year, 46 private companies have agreed to sell shares to state-controlled firms, with more than half selling controlling stakes, according to the Shanghai Securities News, an official government newspaper. While the number is actually smaller considering the vast Chinese economy, This kind of reverses a two-decade trend of state companies selling shares to private entrepreneurs.

One was the Changchun Sinoenergy Corporation, an oil as well as gas company. Its controlling shareholders agreed to sell their stakes to a company run by the government of Hunan Province after a loan was called. The government has pledged to inject nearly $150 million into the company.

China has also taken steps to gain greater control over its technology sector, which flourished largely free through government influence.

Approvals of brand-new video game titles have been frozen since a shift in regulation of which has given the Communist Party’s propaganda department a direct role, an unusual degree of power over what had been a government process. Tencent, China’s video game giant as well as one of the earth’s largest technology companies, has lost nearly one-third of its market value. Tencent declined to comment.

The authorities have also tightened rules governing online commerce. A brand-new law requires those who run online stores to register with the government as well as pay taxes. of which could hit Alibaba Group, also one of the earth’s largest internet companies, because This kind of runs an online bazaar, called Taobao, where merchants big as well as smaller have opened thousands of digital stores. In a statement, Alibaba said This kind of hoped the introduction of the brand-new law would likely bring positive development to the industry.

Against This kind of backdrop, state-owned companies are having a Great year. within the industrial sector, state-owned companies saw their profits grow three times as fast as those within the private sector within the first seven months of the year, according to government data. of which is actually in part because government efforts to cut back on overcapacity as well as pollution have fallen largely on private factories.

Private entrepreneurs are loath to speak out for fear of attracting official condemnation. although signs of distress aren’t hard to find.

Last month, Chen Shouhong, the founder of an investment research firm, asked a group of executive M.B.A. students — many of whom already owned publicly listed companies — to choose between panic as well as anxiety to describe how they feel about the economy. An overwhelming majority chose panic, according to a transcript. Mr. Chen declined to be interviewed.

Optimists point to expressions of concern through China’s top leadership as an indicator of which the government will give businesses more room. Others believe the tougher environment will stay. Xiao Han, an associate law professor in Beijing, cited one of Aesop’s fables, of a man trying as well as failing to stop a donkey through going over a cliff.

“Before long,” Mr. Xiao said, “we’ll probably find a body of a China donkey under the cliff.”