Factories in China's Shandong province. Zhang Peng | LightRocket | Getty Images

Challenges for privately run companies

One of Beijing's strategies for boosting growth is increasing the availability of financing to privately run companies. Private businesses are key to the economic and social well being of China since they contribute to 90% of new jobs and 70% of technological innovation and new products, according to state news agency Xinhua. And for a country controlled by a single party, maintaining social stability is key. Since China's largest banks are owned by the state, they prefer to lend to other state-owned companies. That leaves most private businesses with less-transparent channels of financing. Beijing cracked down on that financing early last year as part of an attempt to rein in ballooning untracked debt. Even before then, smaller companies had a tough time. Small and medium-sized enterprises in China have an average lifespan of 2.9 years, versus seven years in the U.S. and 12 years in Japan, according to a report from The Boston Consulting Group.

Gatley also pointed out that a greater percentage of publicly listed not-state-owned companies in China derive their profits from overseas, making them more vulnerable to rising trade tensions with the U.S. As growth slowed, the government announced major cuts in taxes and fees, and directed banks multiple times to lend more to private enterprises, especially small businesses. Some of those efforts have paid off. Analysis from Gavekal showed cash flows from financing for private firms picked up in the first quarter of this year after nearing zero in the fourth quarter of last year. However, opening the financing spigots — whether from banks or private firms — doesn't necessarily translate into a sustainable turnaround in growth. Given a lack of reliable credit information, financial institutions still have a difficult time determining which businesses are worth lending to, said Duo Yuan, founder of Beijing-based Bluestone Asset Management. "China's credit market is far from mature, and some private enterprises, after getting capital from the private funds, play tricks and try not to pay their debts to investors, even when they have the money," he said in an English-language statement. "And due to the absence of legislation in this area, these companies are not even fined or punished. The consequence is that fewer financial institutions dare to buy bonds issued from private enterprises."