China woos private business to aid economy

[Ulhas Joglekar]

5 January 2000
China woos private business to aid economy
BEIJING: China gave one of its clearest endorsements ever to private
enterprise on Tuesday as it desperately seeks a new economic growth engine
to replace state spending.
A statement by the powerful State Development Planning Commission said all
obstacles to the development of private enterprise should be scrapped.
The statement signalled an important ideological shift by saying private
companies should enjoy the same access to stock markets as state-run firms.
Although China has been loosening restrictions over the private sector,
entrepreneurs have remained stifled by lack of access to bank loans and the
capital markets.
Suspicion about private business runs deep within China's ruling Communist
Party, even though the constitution was changed last year to elevate the
private sector to an "important component" of the economy from a mere
"complement".
The government would "actively guide and encourage private investment", the
Planning Commission statement said.
It would "eliminate all restrictive and discriminatory regulations that are
not friendly towards private investment and private economic development in
taxes, land use, business start-up and import and export", it said.
"Except for the areas that are related to national security and those that
must be monopolised by the state, all the rest of the areas should allow
private capital to enter," it added.
The Development Commission statement acknowledged China's economy faced
"problems that need urgent solution".
Chief among them were deflation caused by a lack of consumer spending,
slowing investment in both state and non-state sectors, and an excessive
reliance on state investment.
China's economy grew by a provisional 7.1 percent last year, largely due to
massive state spending on roads, bridges and other infrastructure funded by
bond issues.
Government economists worry that unless deficit spending ignites private
investment and consumption, it could bury the economy under a mountain of
debt.
The statement said the government poured 200 billion yuan ($24.15 billion)
into infrastructure projects financed by state debt last year, adding two
percentage points to economic growth.
Although it said the government should "gradually reduce investment growth
reliance on fiscal bonds", it made clear that for now Beijing would
"continue to implement active fiscal olicies".
At the same time it would "speed up reform of state enterprises and boost
consumption to buoy economic growth".
Private spending on cars, houses, education and telecommunications would be
encouraged, the statement said.
It also pledged to pour more government money into the impoverished
hinterland in the west.
Most significantly, it offered an unambigous blessing to private enterprise,
and dangled the prospect of unprecedented access to China's two stock
markets in Shanghai and Shenzhen.
The non-state sector, which includes private firms and "collectives" with
mixed state and private ownership, now accounts for 60 percent of industrial
output.
For reprint rights: Times Syndication Service
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