After three decades of reform and development, private enterprises are playing a more and more important role in China’s economy. No matter whether in terms of quantity, or the contribution to the GDP growth, employment, and financial revenues, private enterprises are more productive and efficient than state-owned enterprises. In particular, private enterprises have acted as the cornerstone and underpinning pillars for the establishment and normalisation of China’s market. In fact, the practices of China’s planned economy prior to the reform and opening-up have proven sufficiently that an economy featuring common ownership (including state-owned and collectively-owned) was not compatible with the market. At the beginning of the reform and opening-up, the flourishing of private enterprises and the withering of the state-owned enterprises was a proof that the planned economy did not work and the market economy was what’s needed. Only with the development of private enterprises, did the market economy come into being and bloom in China. This is how the state-owned economy/ enterprises came to fit the development and operation of the market. It can be seen that, the convergence of the state-owned economy/ enterprises with the market was a result of the establishment of and competition from the privately owned economy/ enterprises. As history goes, the reform and opening-up of the Chinese economy unfolds thusly. Those who study economics in China should give this process a serious look. So far, only Mr. DONG Fureng has done so.

However, with the current status of governing, that is, the common ownership economy as the main body and the state-owned enterprises as basis for governing, the market economy was tittering in the national economy with ambitious prospect for development. As there is special protection for state-owned economy/ enterprises and administrative monopolies, which add to the distortion of the market and the resource allocation process, multiple issues come about as a result, such as the imbalance of the economic structure, the inequality in distribution, and the basic property rights. All this has led to the fact that China’s market is heavily controlled and manipulated by state-owned enterprises and capital owned by the bureaucratic-capitalist class. In such a market, state-owned economy/ enterprises are not of an equal status compared to private economy/ enterprises. The private economy/ enterprises are heavily exploited by their state-owned counterparts, which control the resources and factors, as well as the upstream industries. Besides, thanks to the involvement of government officials and the prejudice of the general public, the behaviours of the private enterprises are also distorted in order to survive. Many enterprises stick together to seek rent and provide rent-seeking room for the government and the public powers. This situation makes the private enterprises transform from the creator and guardian of the market mechanism to its parasite and enemy, which is not only frustrating but also worrying.

The above mentioned views are underpinned not only by theories, but also by substantial realities. The theories may have to be written in the form of papers, which could be held as obvious by many, and the reality is readily available to serve as evidence. Recently, Unirule China Entrepreneur Research Centre released a research report entitled “The Survival and Development Environment Index for Chinese Private Enterprises— Guangzhou and Zhejiang Province” (referred to as the “Index” hereafter) that provides new materials for our analysis.

Distinguished from other indices available, the Index offers an alternative theoretical basis derived from the competition order framework proposed by Walter Eucken, a German economist of the Freiburg school, in his book “Grundsätze der Wirtschaftspolitik”. Seven principles constitute the competition order: free prices, free trade, free contracts, private property rights, private liability, price stability, and the predictability of economic policy. These principles stand as general principles and common standards regardless of the peculiar situations and status of a country. Since China has chosen to establish a market economy, these principles should apply to its analysis as well. The so-called “Chinese characteristics” should not be the reason to deny and alter them. Therefore, it is appropriate and valid to apply this analytical framework and standards to the market environment and competition order of China.

The survey was well designed in the Index thanks to the unambiguous analytical theories and basis. There are seven field indices consisting of 34 sub-indices, among which 18 are subjective indices, eleven are objective indices, and five are mixed indices. There is certainly room for improvement concerning the configuration and content of the indices. For example, further explanation is necessary for the four aspects of the administrative monopoly index (namely, market monopoly, intervention of corporate operation by the administrations, coerced transaction, and abuse of administrative monopoly power) are worth pondering on. Besides, the adopted inflation rate is not a perfect factor in measuring certain aspect than the corporate raw material consumption price index. It can also be improved in terms of a balanced mixture of subjective and objective factors for each and every aspect so that comparisons and analyses can be more easily undertaken. In general, the indices provided in this report are plausible and sufficient to reflect the variety of aspects of the operation and competition environment for enterprises.

The survey was firstly conducted in Guangdong and Zhejiang Province. These two provinces are more advanced than their peers with more active private enterprises, which should better showcase the causality and relativeness of certain factors and aspects. The rapid development of private economy/ enterprises has benefited these two provinces, making them the frontrunner and champion for the reform and opening-up of China. A comparatively better market order has also been developed there, which demonstrates the advantages of private economy and the benefit of the market. However, a look at the report findings may be disappointing. It is even more disappointing to compare the findings with those of other provinces. [Page]

Both provinces ranked low in the overall index of survival and development environment for private enterprises. If 6 is designated to be the threshold, Guangdong is graded 5.39, while Zhejiang is graded 5.83, both are below par. Among the seven sub-indices, the two provinces exceed 6 in only two aspects, i.e., price stability and influence of the social discourse. Guangdong is graded under 5 in four aspects: political order (4.62), the guarantee of rule of law (4.63), open market (4.81), and financial freedom (4.84); while Zhejiang is graded under 5 in two aspects: political order (4.41) and the guarantee of rule of law (4.84). Among the 34 indices, Guangdong is graded above 6 in eleven items, and below 6 in 23 items; while Zhejiang is graded above 6 in 15 items, and below 6 in 19 items. This reflects only the two more developed provinces in China, let alone those less developed provinces.

Two items that are graded the lowest are political order and the guarantee of rule of law in the findings of the two provinces. In the 11 indices combined, three items are graded below 3, and half of them are graded below 4. If we take into account the low-graded items of non-official payment, taxation policy, macroeconomic policy fluctuation, and corporate subsidies in the sub-index of private property rights protection, it is apparent that the main factor for the worsening market environment is the administrative power. As a matter of fact, some interviews in the report also prove this. For instance, when asked about the dependence on administrative power of private enterprises, many answered that it is very necessary or very important, with survey figures of 80% for Guangdong, and 84% for Zhejiang. Only a very small figure chose “independent from administrative power”, and the figure is respectively 3% and 8%. 100% of the polled answered that it is necessary to be involved in politics and be a representative of the National People’s Congress or member of the Chinese People’s Political Consultative Conference (CPPCC). And the main purpose for doing so was to guarantee political rights (69%) and political security (63%). The key issue is easy to crack and the policy proposal is only reasonable.

To improve the survival and development environment for private economy/ enterprises is to improve the market environment and the competition order for China. It can be solved by issuing a few administrative suggestions or holding some conferences.

Firstly, it needs a shift of ruling and governing. If state-owned economy/ enterprises are still deemed as the economic basis for socialism and the ruling party, and if the controlling power and influence of the state-owned economy/ enterprises are still to be enhanced and expanded, then a particular and abnormal market status will be granted to them. Therefore, the state-owned economy/ enterprises have the backing of administrative power, which makes private economy/ enterprises the second-class citizens. In this condition, a market order with fair competition will never be established. If the ruling notion is not adjusted, the previous document that’s supposed to initiate new reforms for non-state-owned economy/ enterprises, namely the “Document 36”, is invalid, let alone the so-called mixed-ownership and public-private partnership. In fact, the handed-in fiscal revenue by private enterprises has long overtaken that of state-owned enterprises. It is obvious that the private economy is now the economic basis of this country. Then, let us ask it is who that eats the dinner and smashes the pot?[Page]

Secondly, it is of key significance to maintain the power of the government, of government officials, and of the administration. Power must never be abused. This is not purely a slogan. It is not reliable to leave the administrative power to the government and its officials, because they will never be capable of constraining themselves from abuse of power. However, it is sad to see that Chinese people are doing just that. In fact, the nature of power is self expansive with a tendency to be abused. Therefore, the utmost solution is to constrain power by division and institutions, by independent supervision of the society and the media.

In the current development stage, it is necessary for the government to implement certain industry policy and environment policy. However, the execution of such policies should not be targeting at containing the development of private economy/ enterprises, but at protecting them and facilitating their development. I, therefore, propose that the shut-down of private enterprises should be compensated with a certain amount of shares of the state-owned economy in the current condition, should the private enterprises be shut down for their nature of ownership.  

Thirdly, it is critical to modify certain laws, absolving evil laws and executing good laws while maintaining the judicial independence in order to protect the property and security of citizens by law. There have been some improvements in the amendments of the existing criminal law, for example, the establishment of the principle of presumption of innocence, and the abolishment of death penalty for economic charges. However, it is still of heavy traits left over the era of planned economy. Many criminal charges are vague and hard to measure. Many private entrepreneurs have been persecuted by such charges with their property deprived and their families shattered. It is, therefore, understandable why about 38% of the polled answered that they were either preparing to migrate to other countries or have already done so. Besides, the inclination for migration gets stronger with the scale of the enterprises, which should sound an alarm for the ruling party. If it is not only a slogan to uphold the rule of law and to improve the market environment and the competition order, then false charges should be withdrew and flawed crimes should be canceled.

All in all, improving the market environment is a pressing issue. It is key that the government does not take endeavours in the wrong direction, and really work hard in concrete ways in improving the market and establishing the competition order so that it can gain the trust of the people back.

ZHANG Shuguang, Chairman of Unirule Academic Committee

2015/9/21, Beijing