China’s private firms have been underperforming relative to the state-run sector, according to latest data through July 2022 from the Chinese statistical authority, and the gap is widening.
Revenue growth of private firms lagged that of state firms. Profits of private industrial companies were down by over 7 percent in the first seven months of 2022, while profits of state-owned industrial firm profits were up by 8 percent. Value added, a measure of net output, of state industrial companies grew 5.4 percent in July compared with a year ago, while that of private companies grew only 1.5 percent.
The pace of fixed-asset investment led by minjian—nongovernmental domestic investors—also continues to lag that of state firms. The gap in investment growth between the two forms of ownership widened in July 2022, with minjian investment expanding at a much slower pace than that of state firms.
Private firms produce over two-thirds of China’s output and provide four-fifths of urban employment. The disproportionate losses of the private sector have been among the biggest causes of China’s meager growth and high unemployment so far this year. Many small private firms and individual businesses are facing an existential crisis amid widespread lockdowns under China’s zero-COVID policies. Those that have survived the lockdowns are probably holding off making major new investments. As China strives to stabilize employment and achieve the “best possible” growth over the rest of this year, reviving the private sector is essential.
This PIIE Chart is based on Tianlei Huang and Nicholas R. Lardy’s blog post, Private firms bear the brunt of China’s weak growth.