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Report on the Development of the Private Sector

The private sector is rapidly expanding this year since the nation's economy is steadily growing. The following is a summary report of China's private sector this year, made by Huang Mengfu, chairman of the All-China Federation of Industry and Commerce (AFIC). The report, citing accurate figures from official departments, describes the development of the private sector in 2003 and the forecast for next year.

There are two definitions of the private sector in China. It can refer to non-state sectors, including individual business, private enterprises, collectively-owned enterprises, Hong Kong, Macao and Taiwan invested enterprises, and foreign-funded enterprises. However, the private sector referred to generally in this report is much narrower and is mainly composed of the first three kinds of enterprises.

Rapid development

In 2003, the external environment of the private sector has continuously improved. The government now maps out regulations to secure the interests and rights of the private sector. The development of both private and state sectors becomes complementary and harmonious. It is now an important part of the national economy.

The Third Plenary Session of the 16th Central Committee of the Chinese Communist Party made breakthroughs in non-state economic theory and policies, deciding to actively guide the development of the private sector. The State Development and Reform Commission is currently drawing related regulations. The State Administration of Industry and Commerce is said to be abolishing regulations which discriminate against the private economy and hinder its development. It is also reforming its registration system to better serve private enterprises. Local provincial governments are also adopting many measures to boost its development.

Indeed, the private sector has been rapidly and positively developing in the following ways:

First, employment and tax revenue keeps rising. Despite the impact of SARS, employees in the private sector are increasing. By the end of September, employees of medium- to large-scale private manufacturing enterprises reached 8.83 million, up 16.12 percent over the same period last year, while the employment of foreign-funded enterprises increased 10.72 percent.

The tax revenue from the state sector during January-September was about 448.668 billion yuan (US$54.2 billion). The non-state sector (including foreign-funded enterprises) paid tax of 553.22 billion yuan (US$66.8 billion), accounting for 36.2 percent of the total. Among them, the medium- and large-scale private enterprises turned in 42.167 billion yuan (US$5.1 billion), up 34.22 percent over the same period last year.

Second, the private sector keeps double-digit growth. The added value of scaled enterprises increased 16.7 percent in the first nine months, while that of individual and private enterprises in the secondary industry were expected to rise 18 percent.

Third, private investment surged. In the first nine months, total fixed-asset investment was 3.435 trillion yuan (US$415 billion), up 30.5 percent. Among them, investment from collectively owned enterprises and individual businesses was about 957.7 billion yuan (US$115.7 billion), up 30.3 percent and the highest level in the past eight years. Direct investment of foreign-funded enterprises was about US$40.238 billion, up 11.82 percent.

Fourth, the export is continuously expanding. During the January-September period, the export from the non-state sector was about US$207 billion, rising 45.3 percent, and far exceeding the 11.8 percent growth rate of the state sector. The export growth of private enterprises was about 154.1 percent, while that of foreign-funded enterprises was 38.9 percent. Export from the non-state sector has now accounted for 67 percent of the total.

Achievements of the private sector

First, investment from the private sector is now continuously diversifying, and investment structure has greatly improved. Private capital is now brought into heavy industry, financial services, the educational and cultural industries, media and city infrastructures, and municipal engineering fields. Private enterprises have begun to form alliances for investment, and modern logistics are the focus of their investment in the service industry.

Second, private technological enterprises keep rising. Nowadays, over 5,000 private technological enterprises have established partner relationships with more than 500 domestic universities and research institutes, which provide technological support for enterprise innovation.

Third, private enterprises have become much stronger, and have primarily set up a modern enterprise system.

Fourth, they have actively participated into the restructuring of state-owned enterprises.

Fifth, private entrepreneurs have showed their social responsibilities when facing incidents like SARS. Incomplete statistics show that AFIC member enterprises donated cash or merchandises worth 840 million yuan (US$101 million), despite their production being affected.

Sixth, private enterprises now actively promote corporate culture building.

Seventh, local chambers of commerce have begun to protect the interests and rights of member enterprises and promote industry self-discipline.

Eighth, the enthusiasm of business startups has soared, the private sector accordingly getting a boost. The local branches of the AFIC have also helped the development of the private sector.

Forecast for next year

The year 2004 will be an important period for the growth of China's private sector. We are optimistic that there will be the following changes next year.

First, the legal environment and public opinion toward the private sector will be significantly improved. The protection of private property will be fulfilled in the nation's Constitution, and attitudes toward private enterprises will fundamentally change.

Second, the development of the private sector will be safeguarded through laws and regulations.

Third, the mixed ownership economy will be vital for further development. The policy hindrance on private enterprise's participation into SOE restructuring will be cleared away, and trans-regional mergers and acquisitions will be encouraged.

Fourth, private enterprises will be granted national treatment, and market entry problems will be solved.

Fifth, private investment will replace state investment as the dominant force of fixed-asset investment.

Sixth, the enthusiasm of startups will keep rising.

Seventh, the startup rush of private technological enterprises will emerge.

Eighth, small and medium-sized private enterprises will get all-around support.

Ninth, large private enterprises will win the support of government at all levels.

Tenth, private enterprises will quicken its pace to expand international markets.

Eleventh, the financial support policy for private enterprises will be strengthened.

Twelfth, the function of chambers of commerce and industrial associations will be strengthened.

(China.org.cn by Tang Fuchun and Daragh Moller, December 11, 2003)

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