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Wider Market Access Opened to Private Biz

To China's millions of private business people, the past week has been one with special significance.

Not only have the nation's top leaders reassured them of the central government's support, but they have also been granted their long-anticipated wider market access under a new investment system reform scheme.

Hitting headlines in major newspapers on Tuesday were Premier Wen Jiabao's remarks highlighting the position of the private sector in the national economy. He said that a non-public economy was a "vital component" of China's socialist market economy.

He also pledged to "unwaveringly" encourage, support and guide the development of the non-State sector in a written statement to a forum on how to boost the development of non-State sectors.

Wen's statement was widely regarded as an explicit official endorsement to the private sector following the central government's earlier decision to include stronger protection for private properties in the amendment of the Constitution.

Wen stressed that ongoing macro controls did not target the private sector. Instead, they were aimed at solving problems and contradictions in the economy.

Also on Tuesday, the State Council released its investment system reform scheme under which private business people can put their money into any sector not forbidden by laws. The scheme also said measures would be taken to "encourage" and "guide" private investment into public undertaking projects and infrastructure sectors. "Wen's remarks may become a turning point (for the private sector)," said Bao Yujun, a renowned expert on the private economy and chairman of the All-China Society of Private Economy Research. "But investment system reform should have been launched before the marco control was initiated."

Ever since the government staged macro control policies earlier this year, many private companies have been complaining that they were the major target of the austere policies.

On the one hand, banks, when trying to rein in loan growth, cut their loans to the private sector sharply. On the other hand, a stronger administrative approval system made it harder for private business people to get the nod to launch new projects.

A commentary in Caijing Magazine also warned that measures of macro control, if not implemented properly, could damage the private sector, which is actually now the driving force of China's economy.

China's private sector now contributes about one third of the nation's gross domestic product (GDP) and creates jobs for more than 200 million people. But they have been fighting for standard treatment for decades.

In ongoing macro controls, for example, commercial banks have been told to tighten up their loans, especially in some over-heated areas such as steel, cement, real estate and aluminium.

In practice, however, they have shut their doors mainly to private applicants as they have dared not or have been unwilling to reduce loans to foreign-funded and State firms, making it almost impossible for already capital-thirsty private firms to get funding from banks, insiders say.

"It is understandable that private entrepreneurs have some complaints," said an official with the All-China Federation of Industry and Commerce. "They need support."

In Shanghai, officials with the Shanghai branch of China Banking Regulatory Commission attributed falling loans to the private sector to the fact that some bank staff have misunderstood the macro control policies and "blindly" cut their loan size to the private sector.

The branch urged commercial banks to continue to grant loans to private firms with quality assets.

But bank staff argued that when they submitted loan plans to their higher authorities or headquarters, plans for private firms were most likely be turned down.

"This kind of situation may end after Wen's remarks," Bao said. Other experts have also taken the landmark statement as a policy signal that private enterprises will finally be granted the same treatment as State firms and a promise that restrictive laws will be repealed.

The signal was also received well by private business people.

"We were encouraged by Premier Wen's remarks," said Yin Mingshan, chairman of the Chongqing-based Lifan Group, China's largest private motor manufacturer. "They came at such a crucial time."

He was quoted by China Business Times as saying that the worries of some private business people were understandable, but said: "We should not lose our confidence only because of the current difficulties."

Instead, if banks could treat State and non-State sectors equally, he said, macro control could even turn out to be a good opportunity for private firms in their future development thanks to their flexible mechanism, efficient management and ability to control cost.

It was after China's last macro control in 1995 that Yin's own company achieved its most important take-off.

Alongside Wen's remarks, the new investment system reform scheme, which grants wider market access to private capital, might further unleash the private sector's energy.

The scheme allows private capital to enter any sector not forbidden by law. Private entrepreneurs can invest in infrastructure, public undertakings and other sectors on an equal footing with other types of enterprises.

The procedure for them to get permission to start projects will be simplified further with the abolition of the administrative approval system.

Jiang Weixin, vice-minister of the National Development and Reform Commission, said the private sector would win more support following implementation of the reform.

"It marks an important step - from allowing private capital to enter into only limited permitted areas to allowing them to enter into sectors not forbidden by law," said an economic professor with Peking University.

This will ensure private capital enters profitable areas such as banking and telecommunications, which have been monopolized by State firms.

Their entry will not only supplement insufficient State assets and help break the monopoly in some areas, but also introduce more competition to propel State firms to improve their efficiency, he said.

"We had been planning to enter the public utility sector but have not yet had the opportunity," said Li Shaohua, chairman of a Beijing-based private company. "Now, we see chances are coming."

But both experts and officials stressed that implementation was the key to deciding whether reform could be really effective.

"It is a significant move," said Xia Bin, an expert with the State Council Development and Research Centre. "But the problem is how the document will be implemented. It remains a question whether and how the local government will carry it out."

Bao, of the All-China Society of Private Economy Research, agreed. "If not implemented well, it (the reform) might just turn out to be a show," he said. "The key is that the government should withdraw from the market completely."

Experts worried that local governments frightened of losing opportunities for administrative intervention could be unwilling to carry out the spirit of the central government.

Meanwhile, private firms' funding difficulties can not be resolved in a short period of time. Without a national credit system, banks are unwilling to lend money to small and medium businesses, most of which are private firms.

Some far-sighted local governments have started action to help them.

Guangdong Province, for example, is speeding up the construction of a credit guarantee system to help small and medium-sized private-run enterprises (SMEs) expand financing channels in the next few years.

But except for difficulties in getting funding, private enterprises are often faced with stricter approval procedures and tougher management and supervision from the government.

Experts say reform cannot solve all the difficulties facing private firms. More effort must be made in making legislation to protect the legal rights of private firms and to ensure their equal footing in competition.

Statistics from the State Administration of Industry and Commerce in November last year claimed there were about 2.97 million private enterprises in China with a registered capital of 3.3 trillion yuan (US$397 billion). There are reportedly to be 23.6 million self-employed business people across the country.

(China Daily August 2, 2004)

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