NCPA - National Center for Policy Analysis

New Enterprises For China: Large And Private

September 24, 1999

As China prepares to celebrate the 50th anniversary of the Communists' victory over the Nationalist Army of Chiang Kai-shek, its economy is a mish-mash of thousands of languishing state- owned factories, murky front-companies for military and provincial governments, hybrid ventures which disguise themselves as village enterprises or foreign ventures to avoid taxes, mom- and-pop shops which began to spring up after the economic reforms of 1979 -- and suddenly, large and dynamic private companies.

From the embryonic early years of capital formation, China is starting to spawn substantial, fully-formed private corporations.

  • Government-owned companies that all but monopolized business a decade ago now make up only 47 percent of the economy.
  • The private sector -- not including farms and the operations of foreign investors -- accounts for as much as 40 percent, experts estimate.
  • In Shanghai alone, the number of private enterprises exceeds 110,000 -- a number which has grown as truly private companies have abandoned their former habit of masquerading as collectives.
  • Academic economists there estimate that within five years more than 60 percent of the economy will be in private hands, employing 75 percent of the Chinese workforce.

China's leaders reportedly recognize that the new big corporations are indispensable employers as state firms lay off workers and shut plants. Yet at the same time, the government continues to prop up state-owned firms with fresh batches of money.

The depths of the government's confusion can also be seen in its efforts to help the large new enterprises -- which, after all, produce taxes, while money-losing state ventures do not. So cheap government loans and tax holidays are funding private, high-tech ventures. And government institutes are transferring know-how and technology to hot startups, as well as more established private corporations.

Source: Dexter Roberts, Sheri Prasso and Mark L. Clifford, "China's New Revolution," Business Week, September 27, 1999.


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