A Chinese finance expert is giving an impromptu speech at an international conference about the state of private enterprises in China.
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Transcript and reference translation
I think that the past 30 years of China’s reform and opening up to the world has been a period of “inclusive development”. To China, this means the “common development” of the economy and diverse forms of ownership. Private enterprises have also thrived. In the past 30 years they have become an important part of the market economy, as well as an avenue for employment. Over 75% workers are employed in private enterprises, and over 85% of new jobs are generated by private enterprises.
So if there were no private enterprises in China, the employment problem could not be solved. The wealth that private enterprises create comprises over 65% of China’s economic aggregate. Tax revenue takes up roughly 50%. Economically speaking, private enterprises have made a large contribution.
The main thing is that the development of private enterprises has changed people’s thinking. In the past, people relied on the state to support themselves and give them a wage, and they ate communally. These days are long gone. Nowadays private enterprises are left to their own devices. Not only do they allocate their own salaries but they also replace the wages that used to be given out by the government. This is a significant contribution.
A bottleneck has formed in the development of private enterprises. First, the market has had some limitations imposed upon it. Although our government says that it wants to free the limits on private capital – that it wants to treat everyone equally, and promote equitable competition and equal protection, in actual fact this has not been implemented very well. So the market has encountered some difficulties.
Second, financing is difficult. Financing for private enterprises and small and medium enterprises is very difficult. In response to the global financial crisis, the government has handed out a four trillion economic stimulus package. This all-inclusive plan has played a significant role, but its positive impact has waned, and its downsides have gradually come into view. These downsides involve the management of the government. Every level of government manages enterprises, and investments mainly rely on the government – that is, state enterprises. This puts pressure on private capital and private enterprises. And this is a fact which cannot be denied.
Nowadays securing loans for private capital is extremely difficult. Although banks say that loans for small and medium enterprises constitute around 60% of their credit, this has not been the case for private capital because the small and medium enterprises that the banks are referring to are in fact large enterprises. Real small and micro enterprises cannot secure loans. So financing is difficult and they have to turn to loan sharks.
The third difficulty is that taxation is too heavy – there are too many taxes and expenses. Nowadays private enterprises are faced with the increasing price of raw materials and labour. Meanwhile, taxes and expenses are high and the people fall upon hard times. We must ease their burdens. I advocate turning taxation into salaries. We should tackle the high levels of unemployment in traditional and labour-intensive industries. We should alleviate taxes and exempt them wherever possible, and make sure enterprises continue operating smoothly. We should also employ more workers, or raise employees’ salaries.
The fourth difficulty is securing the rights and interests of private enterprises. They should receive legal protection from the state to protect their private property. After the launch of China’s “Real Right Law”, legal protection was established but in real-life the rights and interests of private enterprises are often infringed upon by the corridors of power. And in many cases this is in the form of governmental interference. So many private enterprises are up in arms but dare not speak, or they may not even show their anger. This dampens their enthusiasm. And this is an issue we need to be wary of.
These different kinds of problems have a direct impact on the enthusiasm of private investment. As for private enterprises themselves, they need to resolve their innovation issues. The biggest advantage of private enterprises is the clarity of their property rights. You get allocated what is called “the third piece of an acre”. You can use it, and you’re highly motivated to do so. However the problem is that property rights are limited because people are not used to cooperating with each other. They have always preferred to rely on themselves to slowly accumulate savings and rely on the banks to lend them money and develop slowly. This is a thing of the past. Private enterprises must operate in the capital market. And to be strong contenders they need to merge, and restructure, and make themselves whole.
Material adapted from an interview with Yu Junbao (保育钧), guest researcher for the Counselor’s Office of the State Council and Vice-Chairperson of the All-China Federation of Industry & Commerce (国务院参事室特邀研究员、全国工商联原副主席). Link includes full original video and transcript. English translation is my own. — Carl