Private enterprise in China gets thumbs up

When China's former paramount leader, Mr Deng Xiaoping, turned Marxist theory on its head in 1991 and announced that "it is glorious…

When China's former paramount leader, Mr Deng Xiaoping, turned Marxist theory on its head in 1991 and announced that "it is glorious to be rich", his remark did not get reported in the domestic media for several days, but when it did it electrified the Chinese economy. In a modest parallel this week, a senior government official said that private enterprise should enjoy equal opportunity in China, raising the prospect of a level playing field for entrepreneurs for the first time in half a century of communism. But it almost went unnoticed as it was buried deep in a routine statement on planning. Many analysts at first ignored or belittled the statement, made to journalists on Tuesday by Mr Zeng Peiyan, minister at the powerful State Development Planning Commission. However, it soon became clear that this was indeed a new departure which could give a boost to entrepreneurs in China, precisely because the government was becoming aware of the vital role they now played in the economy.

The next day, the official Economic Daily reported evidence of this in the huge contribution being made by private enterprise to resolving Beijing's biggest industrial headache - the growing number of workers laid off by bankrupt state-owned enterprises, which employ more than half the urban workforce.

China's private firms absorbed 1.36 million workers laid off by state firms in the first 11 months of 1999, it reported. That was equivalent to the employment of some 4,000 laid-off state workers each day by private firms. China already had 1.49 million private firms employing some 19 million people, the Economic Daily said, and 31.6 million individual small traders employing another 83.3 million people. The new emphasis on private enterprise also arises from Beijing's concerns about declining investment, according to economists quoted in other reports, who said this was the most worrying aspect of the country's economic performance in 1999. Total fixed-asset investment last year fell from 2,845 billion yuan (€336 billion) to around 2,200 billion yuan. Private companies are severely hampered in China because of red tape and the reluctance of state banks to make loans to finance their expansion.

This, it seems, will now change. The government would "actively guide and encourage private investment", Mr Zeng said in his statement. It would "eliminate all restrictive and discriminatory regulations that are not friendly towards private investment and private economic development in taxes, land use, business start-up and import and export. "In the area of stock listings, private enterprise should enjoy equal opportunity which was enjoyed by the state-owned enterprises. Except for the areas that are related to national security and those that must be monopolised by the state, all the rest of the areas should allow private capital to enter."

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This represents the most unambiguous approval yet of the private sector in China, and a logical outcome of the amendment to the constitution last spring which upgraded the dynamic private sector from a "complement" to an "important component of the socialist market economy". Beijing has already begun dismantling legal and institutional restrictions to private business.

Last year, the first import and export licences were granted to private companies. President Jiang Zemin has, however, ruled out privatisation in key sectors, making clear the state will continue to play a "dominant role" in key areas of the economy. Only a handful of the 950 companies listed on China's stock exchanges in Shanghai and Shenzhen are in private hands. The overwhelming majority are government-owned, and shareholders have little influence on boardroom decisions. The lack of trust in state-owned enterprises has led to a loss of confidence in the markets, with investors leaving their money in banks despite only nominal interest rates.

Meanwhile, the number of Internet and mobile phone users in China is soaring, according to statistics published in the Wenhii Daily this week. The number of users connected to the Internet rose to seven million from just two million a year ago, and mobile telephone service subscribers rose by 18 million to 43 million in 1999.