x Abu Dhabi, UAEWednesday 17 January 2018

Winds of change blow through China

Reforms encourage the development of private enterprises in China.

The economist Wu Jinglian, above, is optimistic about reforms and the country’s economic liberalisation push. Che Liang / Imaginechina
The economist Wu Jinglian, above, is optimistic about reforms and the country’s economic liberalisation push. Che Liang / Imaginechina

BEIJING // Entrepreneurship can be a difficult concept in a country such as China, one that is officially Marxist Leninist, but this month’s Third Plenum of the Communist Party contained numerous references to encouraging greater levels of private enterprise in the world’s second-biggest economy.

This means private initiative should be encouraged alongside state industries which, in turn, will need to become more like private companies.

The reform plan, issued several days after the four-day, closed-door conclave of its top leaders earlier this month, contains unprecedented policy shifts, making it the biggest programme of change in more than 30 years in China.

The government should aim to “stimulate small-medium enterprises’ innovation and vitality, promote the reform of application-oriented research institutions to be market-oriented and enterprise-oriented, build a national innovative system,” ran the programme document.

Yuan Yue, the chairman of the Horizon Research Consultancy Group, said the underlying drift of the reforms was to encourage greater levels of entrepreneurship.

“The general direction of the reforms is to unleash the market’s power, giving more chances for innovation,” he said.

“What can be anticipated is that innovative businesses will gain more support, and will develop faster than before,” Mr Yuan told the Global Times newspaper, which is part of the Communist Party-owned People’s Daily group.

Xia Hua, the chairman of Eve Group, said the plenum backed the idea that the market would play a more decisive role.

“At a time of transformation toward a consumption-led economy, private businesses will become a driving force for China’s future development,” she said.

“We are excited to see the reform plans, which will boost consumption.

“Given favourable policies, a fully open and huge market in China, we do not worry about a lack of opportunities.

“The key is how to make the most of it,” said Ms Xia.

Feng Jun, the chairman of Aigo Digital Technology, believes Chinese entrepreneurial enthusiasm will be further inspired by the plenum in areas such as mobile internet.

“The mobile internet market offers huge opportunities. Chinese products and services like WeChat are not only a unique success, but also enhance the development of China’s entrepreneurial landscape,” said Mr Feng.

“But China is currently facing a big problem: there are fewer and fewer entrepreneurs because everyone wants to find a stable job,” he said.

“The government now encourages a market economy and reduces the threshold for company registration, which will surely motivate entrepreneurs.”

The European Chamber president Davide Cucino welcomed the changes in the document as they reflected a long-held consensus about the need for the government to cede political control to the market.

“The decision shows that there is now a political resolve and a general road map for many of the important steps to be taken,” said Mr Cucino.

“All the reforms listed in the decision should be considered to be part of a dynamic loop: if one is not implemented fully, it risks adversely affecting all of the others. We welcome the changes, but they are overdue,” he said.

“The river is swelling. Crossing it by feeling for stones is prudent, but the choppy waters mean that it may also be dangerous to wait,” said Mr Cucino.

The economist Wu Jinglian was optimistic about reform.

The octogenarian Mr Wu has worked on numerous reform plans over the past three-and-a-half decades and said a highlight of the current round of reforms was the decision to allow market forces to play a decisive role in resource allocation and a stated commitment to building a standardised, open, competitive and orderly market.

Without market forces “nothing is effective, no matter whether you call it a basic or a decisive role”, he told Caixin magazine.

To do this, property rights, especially land rights, need to be addressed, and private capital needs to be protected.

And allowing the markets to decide prices, especially for the factors of production – land, labour and capital – was also essential. Currently they are far from market levels.

Third, anti-monopoly measures need to be put in place, especially as regards the government, and a fourth issue is regulation reform, he said.

Finally, Mr Wu stressed the importance of assuring equal access to production factors for all enterprises, limiting the government’s role and realising the principle of “free entry if the law does not prohibit.”

Central to understanding how entrepreneurship can be allowed to flourish in China is observing how the power of the state-owned enterprises is held in check.

The document does spell out an equal shake of the stick for both private and public economy.

“The non-public economy and socialist market economy are both important parts of the economy, and are important foundations to China’s economic and social development,” according to the programme document.

Watching how these principles unfold over the next few months will ultimately be the true test of the reform plan that has been introduced by Mr Xi and how the conditions for entrepreneurs gradually develop.

business@thenational.ae