Get Muscular Before Running Farther: China's Private Businesses

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Last updated at: (Beijing Time) Wednesday, December 11, 2002

Get Muscular Before Running Farther: China's Private Businesses

Private businesses are carrying increasing clout in sustaining China's brisk economy. But they must upgrade themselves in many aspects to make full use of their unprecedented business opportunities in China today.

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Private businesses are carrying increasing clout in sustaining China's brisk economy.

The Chinese Communist Party's 16th National Congress held last month in Beijing has also offered them a secure political footing by describing private business people as the "builders of the cause of socialism with Chinese characteristics", therefore enjoying the same political rights as workers and farmers, traditionally the two socialist cornerstone classes.

But private businesses must upgrade themselves in many aspects to make full use of their unprecedented business opportunities in China today.

By the end of 2001, the number of self-employed businesses and private firms had shot up to 26.26 million, employing 74.74 million workers and turning out an output of 2 trillion yuan (US$241.84 billion) or 21 percent of China's total gross domestic product in that year.

Together with the more than 100 million farmers working in township and village enterprises, most of which are private firms although they are sometimes classified as collective-owned entities, private firms have actually created jobs for over 200 million people, according to the leading People's Daily.

Private businesses are becoming one major means to cushion the up-piling unemployment pressure coming with State-owned enterprises' restructuring and farmers' uncheckable migration to cities.

Nevertheless, private businesses have to make breakthrough in at least the following respects before they can go farther, according to the Shanghai-based Xinmin Weekly.

First, how to grow bigger and live longer.

Most private firms are very small, with a registered capital of around 800,000 yuan (US$96,735)) on average, and a staff usually about 12. Most of these firms cannot manage to live longer than three years.

Second, how to expand their business to new industries.

The vast majority of private firms start up from the small manufacturing businesses, the service sector and some small hi-tech businesses. The relatively narrow industrial convergence has to some degree limited private firms' further growth. They have to find out ways to tap new industries.

The Party's 16th National Congress has actually offered more leeway for their business expansion.

In the congress, the Party decided to divide between the central and local governments the property right of State-owned enterprises.

This means that local governments will have the final say on the administration and disposal of many State-owned firms.

Analysts believe that such a move will speed up State-owned firms' withdrawal out of their traditional strongholds, leaving room for private firms' entry.

Third, owners of private firms must learn to organize their corporate structure and administer their businesses in light more with a standardized corporation than with a simple family business.

There is still a considerable distance between the popular family-like managing styles in most private firms and the requirements of a standardized modern corporation.

As private firms grow bigger in terms of their size, the inborn defects of their family-style management such as the vertical and arbitrary one-way leadership, the cronyism and the closed property right are all hindering their further development.

Last but not least, the insufficient research-and-development (R&D) investment - sometimes it is due to their inadequate R&D awareness rather than a true financial stringency - in most private firms are draining off their growth sustainability.

Although there have been some technicians and professionals shifting from the State-owned enterprises to the private firms, the general technological quality there remains quite low.

It's mainly for their limited innovative capacity that private firms in China nowadays are usually related to the coarse, shoddy and fake products.

By PD Online Staff Forest Lee

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