Cheng Xiusheng

Research Report No 238, 2000

In the early days of its drive of reform and opening-up, China granted preferential policy treatment and support to the private sector for the purpose of changing the situation of unitary ownership, and therefore preliminarily entered the phase of mutual development of diversified ownerships. During the 20 years that followed, the non-State sector ship has forerun the state sector and the private sector has led the public sector in economic development. Starting from scratch, the non-public sector has grown to a considerable size, resulting in a situation of co-development of the State, the collective and the non-public sectors in the national economy. During these years, the private sector has made tremendous contribution to the development of the Chinese economy.

Looking into the new century, China’s private enterprises are shouldering a historic mission of even greater importance. Both the reform of State-owned enterprises and the strategic restructuring of the state economy (characterized by the advancement of some of these enterprises and withdrawal of some others) call for the private sector to fill the gap left over there from through its rapid development. China will soon join the World Trade Organization. Exposed to a new situation of international competition expected from China’s entry into WTO, the country’s private sector will have to face even greater challenges. During the process of the modernization of China’s national economy, the fulfillment of its third-step strategic goal of economic development, and its attainment of the level of moderately developed countries in the middle of the next century, the private sector will have to play an even bigger role and make even greater contribution. To complete this important historic mission, it is necessary to keep proper control over key factors in the development of the private economic sector.

I. Levels and phases of development

China’s private economy has always maintained its trend of rapid growth since China’s economic reform and opening-up. Since 1989, the number of registered private enterprises has been growing at an average annual rate of 34.3 per cent, the number of the employees of these enterprises has been rising at an average annual rate of 30.1 per cent, their registered capital has been going up at an average annual rate of 67.2 per cent, and their total output value has been augmenting at an average annual rate of 58.8 per cent. Having grown to be a sector of China’s national economy at the fastest speed, the private sector has played a remarkable role in spurring the rapid growth of the China’s economy and gained the following basic characteristics:

---- Departure from the phase of primitive accumulation and growth to a fairly considerable economic size as a whole

As generally referred to in economic documents, the private economic sector covers mainly private enterprises, the economic sector of individual ownership, and companies developed from private enterprises in a usual sense, and the economic sector of non-State ownership in its extended sense. According to statistics from the State Administration for Industry and Commerce, China had nearly 1.51 million private enterprises by the end of 1999. The number of employees working in these enterprises stood at more than 20.2 million, the total registered capital of these enterprises reached RMB 1,028.7 billion, and their output value generated amounted to RMB 768.8 billion. At the same time, individually-run industrial and commercial enterprises have also grown to a considerable size. By the end of 1999, there were 31.6006 million individually-run industrial and commercial enterprises in China. With a total registered capital of RMB 343.922 billion, these enterprises employed 62.4091 million workers. Viewed from its possession of capital, employment of workers and generation of total output, the private sector has now gained a roughly 10-20 per cent share of China’s national economy and become an important component part of the Chinese economy that should not be overlooked. A typical study has revealed that if viewed in its sense of an economic sector of non-State ownership, the private economic sector has now taken up a share of more than 60 per cent of and gained a dominant position in China’s national economy in terms of quantity.

---- An important role in investment, employment, tax payment, foreign exchange earning, and scientific and technical development

Investment by the private economic sector now accounts for about 15-20 per cent and that by non-State economic sector including the economic sector of collective ownership has neared half of the fixed asset investment in China as a whole. The private economic sector has also made its due contribution in terms of earning of hard currency from exports and tax payment. In 1999, the sector as a whole earned US$ 35.9 billion from exports, while privately-run industrial and commercial enterprises paid taxes totaling more than RMB70 billion. Whether or not the private economic sector can maintain its sound performance has now become an important factor with a direct bearing on the healthy performance of China’s national economy. As for privately-run scientific and technical enterprises, they have undergone three phases of development in China -- the phase of budding, the phase of accelerated development and the phase of maturity, and have now become a force to be reckoned with. According to statistics provided by departments concerned, the number of privately-run scientific and technical enterprises has now grown to 200,000 in China. Employing a work force of 4.9 million, these enterprises earned RMB 1,000 billion in revenue from technical and industrial projects and trade, a net profit of RMB 68.3 billion, and US$15.8 billion from exports in 1999.

---- With enlarged average size of capital and enhanced strength, a number of private enterprises are developing towards a scale economy

By the end of 1999, the average registered capital of the private enterprises in China reached over RMB 680,000, more than five times the amount of RMB 98,000 in 1990. The number of private enterprises whose registered capital surpassed RMB 1 million hit 200,000, about 73,000 or 58.6 per cent more than in 1998. The number of private enterprises whose registered capital exceeded RMB 5 million was 17,000 (figures ended 1998), and those whose registered capital surpassed RMB 10 million numbered 9,180. The number of private enterprise groups hit 1,689. Of the top 100 private enterprises in China, the first earned a sales revenue of RMB 3.5 billion and the last, RMB 360 million. These figures show that the economic strength of China’s private enterprises has grown constantly ever since they embarked on the track of business operation of scale.

Table 1 Development of private enterprises in China

Data source: State General Administration of Industry and Commerce

With the basic completion of primitive accumulation, new changes are seen in the mode and way of development of the private economy. Some of these changes have a direct or indirect bearing on the implementation of China’s general strategy for national economic development, and call for, therefore, adequate attention.

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