Entrepreneurs energize the economy

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Last updated at: (Beijing Time) Saturday, November 29, 2003

Entrepreneurs energize the economy

A new stratum of private business owners is emerging and gaining clout in Chinese society.

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A new stratum of private business owners is emerging and gaining clout in Chinese society.

The Communist Party's last plenary session made clear that private property will be protected by law to bolster the development of the non-State sector. The commitment is widely seen as an incentive to private business owners.

Once workers, farmers and intellectuals, entrepreneurs who own the means of production and hire staff are still in the early stages of carving a niche in society. However, their power as a relatively independent social group keen to participate in politics has kept growing, leading to rising concern among the public.

A series of surveys on private businesses nationwide over the past decade may help shed light on China's new rich.

The surveys were conducted by the All-China Federation of Industry and Commerce, the Private Businesses Research Centre of the Chinese Academy of Social Sciences, and several other think-tanks.

By the end of last year, owners of registered private companies numbered 6.2 million. Some estimate the true number of private entrepreneurs could surpass 10 million, if those who have affiliated their businesses with big state or collective entities are included.

As the surveys show, the average entrepreneur has changed a lot over the past decade. Today 63.1 per cent of private business owners are former cadres in State firms or public institutions, whereas 10 years ago 59.9 per cent were farmers, workers and service employees.

Those with college degrees make up 33.5 per cent of the stratum, compared to 16.6 per cent a decade ago. Some 4.9 per cent of business owners even have a masters degree. Higher education has considerably increased innovation and management in private companies.

Private entrepreneurs now enjoy higher respect than they used to. Many are elected to serve in national and local legislative and consultative bodies. For the first time, three private entrepreneurs this year were honoured with the country's top labour awards, which used to go exclusively to "model workers" in the State sector.

When SARS (severe acute respiratory syndrome) plagued the nation this spring, private entrepreneurs donated more than 350 million yuan (US$42 million) worth of money and goods.

Entrepreneurs are now playing an irreplaceable role in employment, economic growth and urbanization. The influence of private businesses is being felt in nearly every part of the country's development.

Surveys show private entrepreneurs differ from Chinese in other social strata.

Unlike the majority of China's labour force, private entrepreneurs assume ownership of the means of production, and hire others to work to increase their wealth. At the end of last year, the average private company had registered capital of about 1 million yuan (US$122,530) and employed 11 people. Some 527 private firms employ more than 1,000 workers each.

Although business owners and employees work together to create profits, the former usually have exclusive claim to the fruits while the latter get salaries. In other words, part of entrepreneurs' hefty income derives from the value of labour.

The survey data indicate that, in 2001, the average private firm earned after-tax profit of 882,000 yuan (US$106,265), while the average income of business owners was 137,700 yuan (US$16,590).

And the private sector has grown dramatically in the past decade.

According to the State Administration for Industry and Commerce, the number of registered private companies surged from 238,000 in 1993 to 2,435,000 in 2002, the number of employees rose from 3,726,000 to 34,093,000, and total registered capital soared from 68.1 billion yuan (US$8.2 billion) to 2,475.6 billion yuan (US$298.3 billion).

Over the same period, private businesses' gross industrial output value increased from 42.1 billion yuan (US$5.1 billion) to 1,533.9 billion yuan (US$184.8 billion), retail sales of consumer goods increased from 19.1 billion yuan (US$2.3 billion) to 792.9 billion yuan (US$95.5 billion), and industrial and commercial tax paid rose from 1.1 billion yuan (US$126.5 million) to 94.6 billion yuan (US$11.4 billion).

As the market system matures, private businesses which are market-oriented will grow with greater momentum.

China's economy is currently facing a paradox. On the one hand, a large numbers of workers are lying idle but, on the other hand, market needs are going unmet because of a lack of entrepreneurs who can combine capital, labour force and other resources into new wealth.

Experience shows that prosperity is coupled with the activities of private entrepreneurs. Affluent regions such as Beijing, Shanghai and Guangdong have more than 50 per cent of the country's private companies. By comparison, the less well-off inland provinces account for a very low proportion of private firms.

But as the economy grows in a more balanced way, there will be more room for the development of private businesses. Now an irresistible force, private entrepreneurs will go on to greater success in the foreseeable future.

Zhang Houyi is the director of the Research Centre for Private Enterprises with the Chinese Academy of Social Sciences and Liu Ping Qing is the assistant director of the centre.

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