The Chinese government has gone “too far” in suppressing large technology companies – which will harm innovation and slow economic growth, the analyst said on Tuesday.
“There is certainly a logic to curbing monopolies and some abuses of power that we see in some companies. But they have exaggerated and basically scared innovators out of innovation,” said Scott Kennedy, senior adviser and chairman of the Chinese Business and Economics Commission at the Center for Strategic and Economic Affairs. international studies.
Kennedy explained to CNBC “Street signs Asia“that the private sector is an important source of productivity growth that fuels much of China’s economic growth.
But regulatory regulations could hinder the establishment of new companies, while existing companies – especially small ones – will be afraid to invest in the future, he added.
“Therein lies all the important, good, high productivity growth in China that we may never see as a result of the suppression we see at the moment,” Kennedy said.
That potential blow to China’s growth prospects adds to the economic challenges facing the ruling Chinese Communist Party, which this week marks the 100th anniversary of its founding. China – the world’s second largest economy – is also struggling a growing pile of debt, population aging and the spread of inequality.
The World Bank raised its economic forecast for China for 2021 on Tuesday, stating that “effective suppression” of Covid-19 is helping the country recover. The bank expects the Chinese economy to grow by 8.5% this year, which is more than the previous forecast of 8.1% growth.
Last year, Chinese economy grew 2.3% from a year ago – making it the only major economy to record growth as the coronavirus spread globally.
Kennedy said China is likely to “primarily depend” on government investment to boost growth in the next decade. This is because consumption, although growing, has not returned from the pandemic to the level recorded in investments, he added.
To increase consumption, China must liberalize parts of its service sector so that consumers have additional ways to spend money, Kennedy said.
“We’ve all seen this coming, but … it’s at least a bridge too far in the short term,” the analyst said.
Chinese authorities want to reduce the economy’s reliance on debt-driven investments for growth. But their years-long debt relief effort was paused last year by a pandemic, sending China’s debt-to-GDP ratio to a high of nearly 290% in the third quarter, according to data from the Bank for International Settlements.
– Evelyn Cheng, CNBC’s contributed to this report.