China’s Acceptance of Privatization

Published on Author claud

Zhang Gaoli, the current CPC Tianjin Committee Secretary and member of Politburo of the Communist Party of China, recently made comments that called for more support to be given to the private sector. Zhang acknowledged the country’s tight grip over industry, and commented that “breakthroughs must be made to let private capital into industries”. Economists have long-warned Chinese leaders that delaying private investment-flow to certain sectors is stunting the country’s growth.

Though private companies in China create jobs and generate economic growth, they pale in comparison to state-run rivals, those that receive subsidies and other advantages from the government. Whether or not these recent remarks will lead to a legitimate response from parliament is unclear. What is clear, however, is that it is becoming more obvious that something needs to be done about the freeing of industry in China, and hopefully comments such as these can incite a reaction amongst leaders in the country.


2 Responses to China’s Acceptance of Privatization

  1. I do not doubt that privatization in China will lead to economic growth. What I wonder is what effect this growth will have on the income gap. Currently, the country’s Gini coefficient has been projected to be anywhere from 0.412 to 0.61 – making it one of the most unequal in the world. A proliferation of companies across socio-economic lines would undoubtedly help combat this issue. As the Reuters article points out, three out of four jobs are created by private firms, this coupled with fair wages has potential to be beneficial for the whole society.

    However, privatization would probably further perpetuate the income gap between regions. Growth would occur more in eastern regions, which are close to the ocean and current economic hubs, than those in the west, which are already experiencing lower standards of living.

  2. Be careful not to overrate the extent of the private sector, and the often dubious distinction between a supposedly “state” owned enterprise that pays no dividends and faces little regulation. To begin with the former, outside of most hospitals, the service sector is almost entirely private. Local manufacturing is either private or run by the village or county officials, who treat it as a private enterprise (though the honest ones pay rent and dividends to villagers). In the state sector, a few auto companies (as well as the dominant truck manufacturer) are private. Banks however remain largely public, as does the energy sector. But even in the OECD, electric power is a potential monopoly so rates are typically regulated. Public transportation — in many countries, railroads and subways are widespread — well, it’s public. Ditto in China.

    Even in SOEs such as SAIC and FAW, joint venture partners of GM and VW, the hand of the state is light. The main effort has been to limit new entry (which effort has been unsuccessful!!). It has not extended to wages or product choices or anything of that sort. I don’t know how the CEO is chosen. So it’s hard to pinpoint where the “state” is.

    The main aspect may be to prevent exit of losers, with the main players provincial and municipally-owned “state” enterprises. For that see the relevant chapters in Brandt & Rawski (eds), China’s Great Transformation. This could be a good short paper topic.