Private Enterprise in China

Private Enterprise in China

Ross Garnaut
Ligang Song
Yang Yao
Xiaolu Wang
Copyright Date: 2012
Published by: ANU Press
  • Cite this Item
  • Book Info
    Private Enterprise in China
    Book Description:

    The Chinese economy is currently undergoing a profound institutional transformation—a quiet revolution. In a regulated environment geared to the requirements of state-owned enterprises, the successs of the private sector as the main focus for economic growth is remarkable. State-owned enterprises are currently being restructured based on market conditions in which private firms are now permitted to play an important role. Fascinated by the implications of this reform within the Chinese economy, the Asia-Pacific School of Economics and Management of The Australian National University, in conjunction with the China Center for Economic Research of Peking University research team, conducted a large sample survey. Four study sites were chosen: Beijing, Chengdu, Shunde and Wenzhou. Leading economists analyse the nature and dynamics of private sector reform within the Chinese economy and make recommendations for policy which support opportunities for growth and investment.

    eISBN: 978-1-922144-48-5
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Tables
    (pp. vii-vii)
  4. Figures and Boxes
    (pp. viii-viii)
  5. Abbreviations
    (pp. ix-ix)
  6. Preface
    (pp. x-x)
    Ross Garnaut, Ligang Song, Yang Yao and Xiaolu Wang
  7. A summary overview of emerging private enterprise in China
    (pp. xi-xxiv)

    The Chinese economy is currently undergoing its third great institutional transformation of the reform period. This transformation is as profound as the replacement of the peoples communes with the household responsibility system in the early 1980s and the emergence of township and village enterprises as the main locus of economic dynamism in the second half of the 1980s. The third transformation is the emergence of the private sector as the main focus of economic growth. Like the two preceeding transformations of the reform era, it has proceeded quietly and swiftly, building upon an emerging reality, with change accelerating once the...

  8. 1 Introduction
    (pp. 1-8)

    This introductory chapter specifies the main objectives and introduces the methodology and the sampling strategy of the study.

    The objectives of the study are to

    describe and analyse the nature (size and structure) and dynamics (change over time) of the Chinese domestic private enterprise sector¹

    identify the main constraints to its development including in the regulatory and institutional environment

    assess and discuss the state of reform as it affects the private sector

    identify the opportunities for growth and investment associated with the development of the private sector

    make policy recommendations for supporting the development of the sector

    The book discusses...

  9. 2 Development of the role of private enterprise in China
    (pp. 9-28)

    This chapter describes generally the development of the role of private enterprises in China prior to introducing the Survey results in later chapters.

    After the founding of the People’s Republic in 1949, China quickly built up its state economy with support and aid from the Soviet Union. In 1949, private enterprises produced 63 per cent of the national industrial output; by 1952, this percentage had declined to only 39 per cent.¹

    During this early period, the government aimed to place the private sector under control of the plan system by means of ‘state capitalism’. By 1952, 56 per cent of...

  10. 3 Descriptions of the sample enterprises
    (pp. 29-41)

    This chapter provides summary statistics of the sample enterprises. It discusses briefly the profiles of the four surveyed cities based mainly on aggregate statistics and then Survey information on the size of enterprises and industry distribution, and recent development and performance of these enterprises. Data are arranged to allow comparisons of private enterprises between cities and industries. The results provide important background information for the subsequent chapters discussing various issues facing private enterprises.

    Beijing’s population is 12.4 million including both urban districts and suburban counties. Shunde is a county-level city with a population of 1.4 million. Chengdu is the provincial...

  11. 4 Market competition
    (pp. 42-52)

    This chapter analyses market competition faced by the sample firms with special emphases on the barriers to market entry, business competitors and partners, the role of networks, and reactions to market irregularities. Before discussing these issues, a brief description of China’s general macroeconomic conditions in recent years is provided.

    The year 1992 marked the beginning of a new round of exceptional expansion of the Chinese economy. As inflationary pressure gradually built up in the economy, the government began in late 1993 to implement deflationary measures. These measures were effective. In 1994 the inflation rate was 21.7 per cent;¹ by 1996,...

  12. 5 Finance
    (pp. 53-77)

    Finance is a big problem for private firms in China as is clearly revealed in responses by the sample firms. This chapter discusses the financial position of the sample firms including enterprise arrears, access to formal loans, the role of informal loans, overseas financing, access to equity financing, and possible reforms to the financial sector to accommodate private sector development.

    Table 5.1 reports sources of the initial capital of the survey firms based on the CEO questionnaire. The majority of the survey firms started predominantly on self-financed capital. In Beijing, Wenzhou and Chengdu more than 90 per cent of the...

  13. 6 Taxation
    (pp. 78-89)

    In 1994, China began to implement a new system of taxation, based on a clear destination between central and local taxes. This chapter presents a description of this new taxation system and its impact on private firms. It also analyses the regional differences in the implementation of the new system, and the effects of taxation and fees on private firms. The new system gives local governments considerable discretion in setting taxation policies in their own jurisdictions. As a result, large regional variations have emerged. In addition, a large chunk of a local government’s revenue comes from fees rather than taxes....

  14. 7 Internal governance
    (pp. 90-99)

    This chapter discusses internal governance. We first present statistics on sample firms’ ownership forms and discuss the benefits and costs of each form. It then discusses their internal governance structures, paying special attention to the issues that are unique to private firms. It also discusses governance issues in the context of industrial organisation. The focus then shifts to labour management and the relationship between the owner and the employees.

    Chinese law defines four forms of ownership: sole ownership; partnership; limited liability company; and limited liability shareholding company. Table 7.1 shows the distribution of the forms of ownership taken by the...

  15. 8 Labour and managerial skills
    (pp. 100-109)

    Human capital is the most important factor that constrains a firm’s technological innovation and commercial success. This chapter discusses the skill profiles of managers and workers in sample firms. We then turn to the constraints that limit the sample firms’ capacities to obtain and retain skilled labour. It then discusses wage differentials in size and geographic distributions. It concludes with observations on the implications of the recently introduced social security system on private firms.

    The CEO and firm surveys revealed information on the educational profiles of the sample firms’ management and the background of their top managers.¹ Table 8.1 shows...

  16. 9 Technological challenges
    (pp. 110-116)

    Firms that occupy a unique technological niche were the most successful amongst the sample firms. Even in the current economic slowdown, they do not feel much market pressure (see Box 9.1 for a description of MD in Shunde). This chapter describes the sample firms’ pattern of technological innovations, analyzes problems in R&D and acquisition of technologies, and highlights the importance of the protection of intellectual property rights in fostering private firms’ innovations.

    Amongst the 323 firms providing usable answers, 93.5 per cent regarded new technologies and new products as very important for their development. There were only 21 firms (6...

  17. 10 Laws and government administrative regulations
    (pp. 117-136)

    The role of law and regulation in the development of the private sector has emerged in a number of earlier chapters. This chapter provides a synthesis and highlights critical issues of legal reform. It also discusses the role of instituions for dissemination of business information.

    In China, regulations issued by the State Council and laws passed by the National People’s Congress (the legislator) effectively have the same power although the latter has a higher hierarchic place than the former. Currently, there is one law and one regulation governing the registration and operation of a private firm, that is theLaw...

  18. References
    (pp. 137-138)
  19. Index
    (pp. 139-156)