NCPA - National Center for Policy Analysis

State Enterprises Still The Norm In China

July 12, 2000

Privatization isn't making much headway in China, according to some reports. The state still dominates the economy, and China is still far from the evolving capitalist society many in the West imagine.

  • Private companies -- excluding those controlled by foreigners -- accounted last year for less than 20 percent of China's economic output, and employed fewer than 50 million people in a country of 1.25 billion.
  • Even China's 800 million ostensibly independent farmers grow crops on state-owned land and sell grain to state-owned grain companies.
  • While a sizable gray economy accounts for much hidden private activity, barriers to raising money keep most private businesses from providing more than a handful of jobs.
  • Analysts predict that unless China unleashes private entrepreneurs soon, foreigners could take over a huge part of the country's economy as membership in the World Trade Organization opens up the country in the next five years.

But allowing capitalists to accumulate capital is anathema to China's hard-line Marxists -- who fear a powerful private sector would erode the Communist Party's power.

Speculating in the country's volatile stock market is one of the very few ways prospective entrepreneurs can accumulate enough capital to launch enterprises. Private companies are forbidden to issue bonds.

Moreover, the government holds a majority stake in almost all companies listed on China's two stock exchanges.

Source: Craig S. Smith, "Private Business in China: A Tough, Tortuous Road," New York Times, July 12, 2000.


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