NCPA - National Center for Policy Analysis

China Puts Private Enterprise In Its Constitution

February 2, 1999

With unemployment rising and economic growth slowing to 7 percent, China's leaders are revising the country's 17-year-old constitution to encourage the formation of private companies. They hope that tiny, family-run private companies will evolve into much larger firms and hire the jobless.

  • The leaders of China's parliament -- the National People's Congress -- are adding provisions to protect private enterprise, promote adherence to the rule of law, recognize multiple forms of ownership and implement the pragmatic ideology of Deng Xiaoping, who guided China away from communism.
  • The current constitution calls family-owned businesses a "supplement" to the "socialist, public-owned economy."
  • The new wording calls private enterprises and family-owned businesses an "important part of the socialist, market economy."
  • By changing the constitution, the government hopes state- run banks will stop discriminating against private companies and bureaucrats will end the slew of arbitrary fines and fees regularly levied against helpless private companies.

The imbalance in loan policies can be seen in the statistics: 70 percent of loans go to state-run companies, although they account for just 30 percent of industrial output.

Meanwhile, at least six state-owned companies in Southern China's Guangdong province have defaulted on domestic bond issues -- extending a recent string of defaults that have burned foreign bankers and international bondholders.

Sources: Ian Johnson, "China Takes Steps to Protect Private Enterprise, Breaking With Its Past to Revise Its Constitution," and Craig S. Smith and Karry Leggett, "Chinese Face More Defaults By State Firms," both Wall Street Journal, February 1, 1999.


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