Deep shifts needed to spur new economic growth

• Source: Global Times
• [22:55 March 21 2010]
• Comments

The first issue, the power of SOEs, was highlighted on March 12 at the NPC by Chi Fulin, executive director of the China Institute of Reform and Development. Chi pointed out that SOEs account for 8 percent of China's jobs, but generate over 51 percent of the country's total profits.

Profitable big businesses are clearly desirable; however, it must be balanced with robust small and medium-sized enterprises (SMEs).

SMEs have long been seen as a crucial means of wealth redistribution as they promote grass-roots economic growth and entrepreneurship, thereby increasing competition and diversity within industries.

The absence of a strong SME tier in China's economy can be partially attributed to the second major obstacle mentioned above: poor levels of corporate governance.

Inconsistent application of the rule of law means that start-up businesses are severely handicapped in an economy where the major players have not only greater financial resources, but also enjoy close connections to government officials.

Similarly, the monopolistic tendencies of the SOEs mean that even successful new businesses find it hard to gain access to resources, particularly credit, or increase their market share.

The established Chinese banking system, for instance, rarely lends to SMEs.

As a result, pawnshop chains have begun providing extensive loan services to SMEs, providing much needed but poorly regulated credit.

These are just a handful of the many structural aspects which currently prohibit wealth distribution. Outdated rural land laws and an underdeveloped service sector are also deficiencies which need to be rectified to let the economy grow unhindered.

For these reasons, while the government's acknowledgement of the undesirability of China's sky-rocketing inequality is an encouraging sign, it must make bold and sweeping changes if it truly wishes to overcome this issue.

Eliminating corruption is only the first step in the government's bid to make China a fairer society, not a complete solution.

The author is a Beijing-based British freelance writer specializing in Chinese political economy. forum@ globaltimes.com.cn