By Richard McGregor
Financial Times, 13 September 2005
The private sector in China is now responsible for about three-quarters of economic output and employment, according to a new survey, making the ruling Communist party more dependent than ever on entrepreneurs to sustain the high-speed growth underpinning its rule.
The survey by CLSA, the brokerage, to be released in Hong Kong today, says that "tens of millions of small and medium-sized enterprises have wrested control" of the economy from the state sector that dominated business for half a century following the 1949 revolution.
Private companies are more profitable, more efficient and carry less debt than the state sector, the report says, giving the economy significantly more flexibility as it enters a possible slowdown in coming months.
The dominance of the private sector is also important politically, as the Chinese government will not be able to roll back market reforms, as it did the last time the economy slowed sharply in 1990, in the aftermath of the 1989 crackdown on pro-democracy demonstrators in Tiananmen Square.
"The party is going to have stick to the dance partner that delivered the past few years of strong growth - China's entrepreneurs," the report says.
The report's assertion about the high contribution of the private sector to the economy is not without controversy.
The Chinese government's own official statistics in 2003 said that only 22 per cent of gross domestic product was generated by local companies registered as private enterprises.
The CLSA report arrives at the much higher figure by counting all enterprises defined as "collectives" or "joint-stock companies" as private companies, an assertion that is still debated in China.
The report also factors in the underground economy.
In a high-profile case last year, the State-owned Assets Supervision and Administration Commission (Sasac), which oversees government enterprises, announced that Haier, the country's largest white goods company, was owned by the state.
Haier was set up as a collective in the 1980s under the Qingdao city government but had long been privately managed.
Zuo Xiaolei, the chief economist with Galaxy Securities in Beijing, said ownership was usually defined according to the largest shareholder.
"But this is a very vague and confusing area, as China's privatisation has been fraught with irregularities," he said.
"As long as companies like Haier keep their ownership structure from the public, it will be hard to define whether these enterprises are privately run or state owned."
In any case, the trend towards greater private ownership and a smaller state sector is openly encouraged by the central government.
Li Rongrong, the head of Sasac, which has 169 central government companies under its control, said in a speech last week that Beijing aimed eventually to whittle them down to about 80 to 100, or even lower.
Mr Li said that Beijing would accelerate reforms to ensure that state companies were internationally competitive, and concentrated in strategic sectors and those that affect "national security".
"Temasek only controls 20 to 30 companies, but we have to manage 100 to 200. How can we run them well?" he said. Temasek is Singapore's main state investment vehicle.
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Citation: Richard McGregor. "Private Sector in Control of China Economy, Survey Says," Financial Times, 13 September 2005.
Original URL: http://taiwansecurity.org/News/2005/FT-130905.htm
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