No zero-sum game between SOEs and private sector
- By Hu Angang
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E-mail China.org.cn, April 15, 2012
The relationship between state-owned enterprises and private enterprises is not countervailing but complementary.
Description of China's macro-economic structure as "the state advances while the private sector retreats" has become extremely popular in recent years. The implicit premise of it is the state and the private sectors are playing a zero-sum game, where one participant gains only as another losses in equal measure. There is no value in cooperation at all.
This notion is a false proposition. Both the state-owned enterprises and private enterprises are an important part for China’s economic development, and balanced development is the key to the success of China's economic development. The relationship between the two is not countervailing but complementary, and this is backed up by the number of state-owned and private enterprises, the number of their employees, their revenues, profits, and taxes and other contributions to the public finances of state and private sectors.
Between 1998 and 2010, the number of China's state-owned and state-controlled industrial enterprises decreased from 64,700 to 20,300 – about only 40 percent of the number in 1957 (49,600). Their percentage of all businesses dropped to 4.5 percent from 39.2 percent. In the meantime, the number of the private industrial enterprises with yearly revenues of 5 million yuan or higher increased from 10,700 in 1998 to 272,300 in 2010 – from 6.5 percent to 60.3 percent.
During the same period, the number of employees in China’s state-owned and state-controlled industrial enterprises was down by half, dropping from 37.48 million to 18.86 million. Concurrently, employment in the private sector expanded 20 times over from 1.61 million to 33.12 million. Job creation in the private sector significantly outpaced their growth in revenue and profit.
In terms of the percentage of the total gross output of the country’s all industrial enterprises, that of the state-owned and state-controlled industrial enterprises dropped from 49.6 percent in 1998 to 26.6 percent in 2010. In the same period, the percentage from private enterprises jumped 10 folds, rising from 3.1 percent in 1998 to 30.5 percent in 2010. Since 2009, the gross output of private industrial enterprises has exceeded that of the state-owned and state-controlled enterprises.
Finally, profits by state-owned enterprises accounted for 85.0 percent of total profits in the industrial sector in 1978, but only 27.8 percent in 2010. Meanwhile, private industrial profits shot from 4.6 percent in 1998 to 28.5 percent in 2010. There is currently no significant difference between the two in terms of revenue and profits.
In regards to taxes and other contributions to public finance, the total tax revenue from the state-owned and state-controlled enterprises in recent years has been higher than that from the private enterprises. Enterprises that are state-owned and state-controlled are still the major contributors to public financial resources.
Chinese economists should take full advantage of these pieces of data publicly available from the National Bureau of Statistics, in order to inform the public and to clarify misconceptions. In this regard, Nicholas R. Lardy from the Peterson Institute for International Economics has conducted a special study, with results and conclusion similar to those of my studies.
It should be noted that these studies are broad-based, and there are isolated cases in certain industries, sectors or time periods that belie the findings. While true, these cases are products of unique circumstances and not related to overall trends.
Under China’s socialist market economic system, state-owned enterprises and the private sector play different roles. State-owned enterprises are more fully equipped and assigned the core task to compete with international Fortune 500 companies and to become industry leaders; private enterprises, meanwhile, aim to create jobs and help regional development.
The competition between the state-owned enterprises and private enterprises helps both sides to constantly improve. This also explains why Chinese companies can enter Fortune 500 companies in such a short time.
The author is a professor of public policy at Tsinghua University.
(This article was firstly published on Journal of China National School of Administration and was translated by Li Huiru.)
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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