Is the private sector propelling China’s economy? Going by the following figures, one may be tempted to say “yes.” Between 2000 and 2005, the number of registered private businesses increased by 138 percent to 4.19 million and their registered capital increased by 337 percent to about 5.8 trillion yuan. They accounted for 84 percent of total employment and contributed more than 60 percent of total tax revenues. The private economy now accounts for as much as two thirds of China’s gross domestic product (GDP).
　　Last September, the Organization for Economic Cooperation and Development, in its first-ever Economic Survey of China 2005 report, said, “The private sector has become the basis of [China’s] economic expansion.”
　　On the basis of the results of the first National Economic Census covering secondary and tertiary sectors, released at the end of last year, China revised its GDP for 2004 by 2.3 trillion yuan to 15.9878 trillion yuan. Of this increase, 93 percent or 2.13 trillion yuan was attributed to the service sector, in which privately run businesses play a key role. The census reveals that the private sector is most active in wholesale and retail trade, with the number of private enterprises accounting for more than 90 percent of the total.
　　And recently, a report by the All-China Federation of Industry and Commerce (ACFIC) on the development of China’s private economy over the 10th Five-Year Plan period (2000-05) said this sector is booming.
　　“The emergence of a mixed economy in China is not privatization, but the result of a diversity of investors in China’s transition to a market economy.” ---Li Yining, a renowned Chinese economist at Peking University
　　So how large is China’s private sector? The answer to this is not as straightforward as it seems, as the definition of “private economy” in China varies greatly.
　　The ACFIC report classifies the private economy into three levels. In its broadest sense, it includes all kinds of enterprises except state-owned or state-holding ones. Then there is the so-called “domestic-funded private economy,” which leaves out foreign-funded enterprises as well as those invested in by Hong Kong, Macao and Taiwan businesses. The third definition that the report uses excludes what are called “collectively owned’’ enterprises.
　　Based on these three definitions, the ACFIC report says the “domestic-funded private economy’’ accounted for about 49.7 percent of GDP in 2005. If foreign-funded enterprises as well as those with investment from Hong Kong, Macao and Taiwan are included, this figure rose to about 65 percent.
　　The ACFIC report also shows that ownership structures in private enterprises are becoming increasingly diversified, moving from mainly individual and family enterprises to companies with diverse equities. It reveals that as per a 2004 survey, between 1993 and 2003, the number of sole proprietorships and partnerships declined from 63.8 percent to 22.5 percent while joint-stock companies of limited liability increased from 16.5 percent to 62.9 percent. It also says that an increasing number of private enterprises were trying to get listed on domestic and overseas stock markets through mergers and acquisitions or other system changes. Between 1998 and 2004, the number of listed private enterprises on China’s Shanghai and Shenzhen bourses had risen from 69 to 336. The private sector was pushing the development of the domestic securities market, according to the report.
　　“Though many areas in the tertiary sector are open to private capital, private businesses still find it difficult to enter areas such as postal services and distribution of oil products.”--Wang Xiang, Chairman of Jiangxi Minsheng Group
　　A BusinessWeek report last August quoted Fan Gang, one of China’s best-known economists, as attributing 70 percent of China’s GDP to the private sector. Fan heads the National Economic Research Institute, a think tank affiliated with the China Reform Foundation. However, it is not clear what definition of the private economy he was using.
　　What is clear, though, is that the non-state sector has emerged as an important contributor to the nation’s overall economic growth. And this takes us back to the question raised at the beginning of this article. Will the private sector displace the state sector as the dominant player in the Chinese economy?
　　For an answer to this question, Beijing Review talked to members at the annual session of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), China’s top advisory body, held in early March. The interviewees included economists, executives of state-owned enterprises and private entrepreneurs.
　　
　　Socialist contributor
　　
　　“That’s nonsense,” said Li Yining, a well-known Chinese economist and Vice Chairman of the CPPCC Economic Committee. He said what China has now is a mixed economy. “The emergence of a mixed economy in China is not privatization, but the result of a diversity of investors in China’s transition to a market economy,” said Li.
　　“The private economy has displayed its vigor in the past more than 20 years because it accords with the market economy.” --Han Wei, Chairman of Dalian-based Hanwei Group
　　All the CPPCC members that Beijing Review spoke to during the annual CPPCC session stressed the significant role that the private economy is playing in easing employment pressure, especially at a time of surplus rural labor.
　　Some also pointed out the role that private capital is playing in the reform of state-owned enterprises. Professor Li said such participation has led to a diversification of ownership structures.
　　Last year, the State Council, China’s cabinet, issued a 36-point proposal on encouraging and supporting the development of the non-public economy. It says the private sector is free to operate in all areas except those restricted by law, and pledges more financial support for the non-public economy and intensified protection of private businesses’ lawful rights and interests.
　　“This is really encouraging,” said Han Wei, Chairman of Dalian-based Hanwei Group. Han said that his company was established in 1992 as the nation’s first privately owned group company.
　　“The private economy has displayed its vigor in the past more than 20 years because it accords with the market economy,” Han said. “The achievements are hard-won and it is not easy to break up the cage of the planned economy.”
　　A symbol of the booming private economy, according to Han, the current CPPCC National Committee consists of about 200 entrepreneurs from the non-state sector, compared with around 20 in the Eighth Committee serving 1993-97.
　　
　　Problem areas
　　
　　“Monopoly interests in sectors such as telecom, petroleum and power pose a big obstacle to the development of the private economy.”--Bao Yujun, Chairman of the Chinese Society for Private Economy Studies
　　But the larger role of the private sector in the nation’s economy does not necessarily mean it has woes.
　　“Some government policies still favor state-owned enterprises,” Han complained.
　　Han’s views were echoed by Wang Xiang, Chairman of the privately owned Jiangxi Minsheng Group. “Though many areas in the tertiary sector are open to private capital, private businesses still find it difficult to enter areas such as postal services and distribution of oil products,” Wang said.
　　Bao Yujun, Chairman of the Chinese Society for Private Economy Studies, agreed that monopoly interests in sectors such as telecom, petroleum and power pose a big obstacle to the development of the private economy.
　　Although the private sector is now allowed to enter these fields, the market access thresholds remain high. “That’s why private enterprises describe them as a ‘glass door’-it seems that we can go through but actually we will be bounced back once we touch the door,” said Bao.
　　“Now that private capital is allowed to enter these areas, they are being discriminated against under the pretext of ‘safeguarding state security,’ as if it is safe [for resources] to be controlled by state-owned corporations but unsafe in the hands of ordinary people,” he continued.
　　Professor Li said private businesses are also hampered by inadequate domestic financing channels. As a result, many have to count on foreign venture capital or seek overseas flotation.
　　China’s private business people have entered a new stage of transition, Li added. The earlier transition was from farmer to small entrepreneur. Now it is from small entrepreneur to modern entrepreneur.
　　
　　PRIVATE JOBS: More than 60 percent of all employees in industrial corporations are employed by private enterprises, according to the first National Economic Census
　　Han Wei also pointed out that private enterprises are still not treated on par with state-owned enterprises in terms of financial support.
　　However, according to Guo Shuqing, Chairman of state-owned China Construction Bank, his bank treats every enterprise equally based on its “credit standing, risk analysis and market potential.” But he did suggest that China should encourage the establishment of more privately owned financial institutions that can cover rural areas.
　　Han said he was most concerned not about the Central Government’s policies toward the private sector, but about the reluctance of some local officials to carry out state policies in order to protect vested interests.
　　While the private sector is active in fields such as real estate, IT, education and agriculture, the most profitable industries such as petroleum, banking and civil aviation remain under state control. Han said he hopes efforts to open up these areas will be sped up, adding “the control on the banking industry has already been relaxed while not totally accessible to the private economy.”
　　Besides the government’s efforts, the private sector must also improve to further its development, said Bao Yujun. It must diversify its capital base and improve management.
　　“Very few businesses have their own brands. Private enterprises must develop their own brands which are the combined reflection of technology, credibility and management,” Bao said.

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