[Documents menu] Documents menu

Private business eclipses state sector in China, study shows

Associated Press, 19 October 2000

BEIJING (AP) -- Private businesses account for more than half of China's economy despite a banking and taxation system still skewed toward lethargic state-run enterprises, a landmark study released Wednesday said.

The report, funded partly by the World Bank's International Finance Corporation, provided the most authoritative evidence to date that thriving private enterprises have eclipsed the state sector and marks another milestone in China's transformation from central planning to free markets.

It also recommended that the government do more to give private firms access to capital, thereby increasing the economy's overall efficiency.

The study found that over a decade ending in 1998, non-state firms in general grew more rapidly than state-owned ones because they used resources more effectively. The value of goods and services produced by officially registered private firms grew at ten times the rate of state business, the study said.

Government statistics have shown for four years that non-state firms accounted for more than half of China's now trillion-dollar economy. But China's confusing ways of categorizing businesses have confounded attempts to define how much of the economy was now in the hands of truly private businesses.

Particularly troublesome was a category of firms known as collectives, which by government reckoning accounted for 23 percent of the economy in 1998. While some are combinations of state businesses, others are private businesses using the collective label.

Study authors Ross Garnaut of Australian National University and Song Ligang of Peking University found that officially registered private firms, foreign enterprises and family farms were responsible for 50 percent of the economy in 1998.

That share rose to 62 percent if private firms officially labeled collectives are counted, the study said.

Private sector dominance of the economy will now grow rapidly as expansion at state firms remains slow while their non-state counterparts make better use of capital and labor, the study said.

Still, non-state firms remain hobbled by limited access to funds and unequal taxation.

State banks, which account for most lending, continue to favor state firms, leaving private businesses to rely on themselves to raise money, the study said. It added that the tax system encourages local officials to levy fees and other charges on small businesses to protect the state industries they supervise.

Even as Chinese leaders remain wary that the non-state economy could undermine their power, the communist government has indicated a reliance on the private sector to generate jobs and growth.

The Communist Party's annual policy-setting meeting last week endorsed a stronger role for the private sector.