China’s relationship with its private sector has undergone a remarkable transformation, reflecting the country’s broader economic evolution. From the eradication of private enterprise under the Founder of the People’s Republic of China (PRC), Mao Zedong (1949 to 1959), to the current pivot towards collaboration, the journey provides a crucial context for understanding recent developments.
Historical context: from suppression to cautious embrace
In the early years of the PRC, private ownership was viewed as antithetical to communist ideals. Mao’s era saw widespread nationalisation, effectively eliminating the private sector. However, Deng Xiaoping’s reforms in 1978 marked a seismic shift, with his famous proclamation that “to get rich is glorious”, signalling a new openness to private enterprise.
China’s 1994 Company Law provided the first formal legal framework for private enterprises in the PRC era, catalysing rapid growth. By the early 2000s, Jiang Zemin’s “Three Represents” theory welcomed private entrepreneurs into the Communist Party, further legitimising the sector.
However, under Xi Jinping’s leadership, since 2012, the relationship between the government and the private sector once again, became more complex. Increased scrutiny and measures such as embedding party cells in private companies signalled a shift towards greater state control, creating tension between economic dynamism and political oversight.
A landmark summit: Xi meets the titans of industry
Against this backdrop, the meeting between President Xi Jinping and over 50 private sector leaders on 16 February 2025 marked a potentially pivotal moment. This unprecedented gathering included figures like Jack Ma of Alibaba, Lei Jun of Xiaomi, and Wang Xing of Meituan. It underscored Beijing’s renewed commitment to fostering a collaborative relationship with private enterprises.
During the summit, Xi articulated a vision of symbiosis between state objectives and private sector dynamism, pledging government support in creating an environment conducive to private business growth. This approach aims to address long-standing concerns about regulatory overreach and uneven playing fields.
Policy realignment: concrete steps towards a new era
In the wake of this landmark meeting, the Chinese government unveiled a series of measures designed to reinvigorate the private sector:
- The State Council announced initiatives to streamline bureaucratic processes, aiming to reduce administrative burdens on private businesses.
- The People’s Bank of China introduced new financial mechanisms to enhance private companies’ access to capital, including targeted lending programmes.
- The Ministry of Science and Technology rolled out enhanced tax incentives for research and development in strategic technological domains.
These policy shifts had an immediate and positive impact on market sentiment, with notable gains in Chinese stocks both in Hong Kong and United States (US) exchanges.
The Jack Ma effect: a symbol of changing times
Jack Ma’s presence at the summit carried particular significance, given his recent history of tension with Chinese authorities. His reemergence and apparent reconciliation with the government have been widely interpreted as a powerful indicator of Beijing’s evolving stance towards tech entrepreneurs and the private sector at large.
Navigating the new landscape: opportunities and challenges
While recent developments signal a more supportive governmental approach, analysts suggest that a degree of oversight will likely remain. The challenge lies in striking a balance between unleashing private sector innovation and ensuring alignment with broader national economic objectives.
This shift in China’s approach to its private sector carries significant implications for global trade and investment:
- A reinvigorated Chinese private sector could lead to enhanced innovation and competitiveness in global markets, particularly in technology and sustainable energy sectors.
- The more supportive domestic environment may attract increased foreign investment into Chinese private enterprises.
- As Chinese private firms gain strength, it could alter global trade patterns and potentially intensify competition in certain industries worldwide.
A delicate balancing act
Despite the positive signals, challenges persist. Private sector entities will need to navigate an evolving regulatory landscape with care. Moreover, ongoing geopolitical tensions, particularly between China and Western nations, could continue to impact the operational environment for Chinese private companies in global markets.
As China embarks on this new approach, the global community will be watching closely to see how this recalibration unfolds and what it means for the international economic landscape. The success of this initiative could prove crucial not only for China’s economic growth ambitions but also for its position in the global economy.
MARKET OVERVIEW
This week has been marked by a mix of economic data releases, geopolitical developments, and shifting monetary policy expectations. Global markets have responded with volatility across equities, bonds, currencies, and commodities.
KEY DRIVERS THIS WEEK
- US-led trade tensions: President Trump’s tariff announcements on Canada, Mexico, China, and Europe dominated headlines, weighing heavily on equity markets and adding uncertainty to global growth prospects.
- Economic data: US durable goods orders were up 3.1% and exceeded expectations, while US fourth-quarter gross domestic product (GDP) growth was confirmed at 2.3%. However, initial jobless claims rose sharply by 242,000, raising labour market concerns.
- Central bank signals: Growing expectations for rate cuts in the US, United Kingdom (UK), and eurozone have driven bond yields lower globally while providing some support for equities.
- Geopolitical risks: Ongoing peace talks between Russia and Ukraine remain in focus alongside the US’s efforts to decouple from China.
Mixed equity performances across regions
US equities showed resilience despite mixed economic data and trade tensions. Both the S&P 500 and Nasdaq experienced significant declines yesterday. The tech sector, including companies like Nvidia, led the market downturn rather than driving gains. The market movement yesterday saw the S&P 500 drop by over 1.5%, while the Nasdaq fell even more sharply, declining by nearly 3%. This selloff was particularly pronounced in technology and AI-related stocks, despite some companies reporting strong earnings. Nvidia, specifically, saw its stock price decrease significantly yesterday, despite recently announcing positive financial results. Concerns about tariffs on Canada, Mexico, and the European Union (EU) weighed on sentiment earlier in the week. Durable goods orders surprised to the upside gaining 3.1%, and GDP growth for the fourth quarter was confirmed at 2.3%, providing some support to markets.
European equities struggled under pressure from US tariff threats on European cars and goods. Germany’s DAX fell over 1% on Thursday as automakers like Volkswagen and BMW posted significant losses due to trade concerns.
The UK’s FTSE 100 fared slightly better, supported by energy and mining stocks, but still ended the week lower due to disappointing earnings from companies like advertising and communications agency, WPP, and global technology company, Ocado.
South Africa’s JSE All Share Index showed relative strength, buoyed by resource stocks amid rising commodity prices. However, domestic challenges such as power constraints and fiscal uncertainty continue to weigh on investor sentiment.
Bond yields reflect economic uncertainty
US Treasury yields fluctuated this week as investors digested mixed economic data and trade developments. The 10-year yield climbed back to 4.3% after hitting a two-month low earlier in the week. Initial jobless claims rose to a two-month high of 242,000, signalling potential labour market softness, while durable goods orders and GDP data provided a counterbalance.
UK Gilt yields fell below 4.5%, their lowest level in two weeks, as dovish comments from Bank of England (BoE) policymakers increased expectations of rate cuts later this year. Weak consumer spending and subdued inflationary pressures have added to the case for easing.
German Bund yields remained under pressure as investors sought safe-haven assets amid escalating trade tensions with the US. Expectations of further European Central Bank rate cuts also contributed to downward pressure on yields.
South African Government bond yields hovered near 10.8%, reflecting investor concerns over inflation, fiscal challenges, and political uncertainty. Rising global trade tensions added to the risk premium demanded by investors.
Dollar strength dominates
The US Dollar Index rose 0.5% this week, reaching a one-week high of 107 on Thursday. Resilient US economic data, in the form of durable goods orders, supported the greenback amid heightened geopolitical risks.
The euro edged lower against the dollar, trading just below $1.048/€ as traders assessed the impact of US-EU trade tensions and weaker-than-expected German economic data.
The pound traded around $1.264/£ after retreating from its recent highs earlier in the month. Expectations for BoE rate cuts have weighed on the sterling despite ongoing Brexit-related uncertainties.
The rand remained range-bound but weakened slightly against the dollar this week, trading near R18.46/$. Domestic factors such as inflation concerns – local inflation increased slightly year-on-year to 3.2% in January – and fiscal uncertainty continue to cap gains for the currency.
Gold faces weekly loss, oil rebounds
Gold prices remained near record highs early in the week but slipped below $2,900/ounce on Thursday due to a stronger dollar and signs of softening physical demand from China and Switzerland. The metal remains supported by geopolitical tensions and expectations of US Federal Reserve’s (Fed’s) rate cuts later this year.
Brent crude oil rebounded above $73/barrel after hitting two-month lows earlier in the week. Supply concerns resurfaced following US sanctions on Venezuelan crude exports and President Trump’s announcement that he would refill the US’s Strategic Petroleum Reserve rapidly.
As we close out February, markets will closely monitor upcoming US inflation data – such as the Personal Consumption Index, which is the Fed’s preferred inflation gauge – for further clues on monetary policy direction in the US, as well as developments in global trade negotiations under President Trump’s administration.
For now, global markets remain caught between optimism over resilient economic data and caution over geopolitical uncertainties – a balance that will likely continue driving volatility into March.
Key indicators:
USD/ZAR: 18.49
EUR/ZAR: 19.20
GBP/ZAR: 23.25
GOLD: $2,864
BRENT CRUDE: $73
Sources: Harvard Kennedy School, Seafarer, AEEN, IAAP, CNA, South African Government, Brookings, Reuters, Bloomberg and Trading View.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.