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Home >> Business
UPDATED: 09:14, June 08, 2006
Private sector in need of industrial upgrade
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Due to China's opening up its economy, the private sector in the Yangtze River Delta has enjoyed rapid growth and has been playing an increasingly important role in the region's development.

The Yangtze River Delta in the country's east, as well as the Pearl River Delta in the south, boasts the most dynamic private economies in the country. The figures speak for themselves.

In Zhejiang Province, the private sector contributes to more than 70 per cent of the province's gross domestic product (GDP), over 50 per cent of tax revenue, and over 40 per cent of exports. In addition, more than 90 per cent of people employed in Zhejiang work for privately-owned enterprises.

Among China's top 500 private enterprises, 118 are from Zhejiang. In another list of the top 50 private companies in terms of brand competitiveness, which was recently released by the Chinese Academy of Social Sciences, there are 23 Zhejiang-based companies.

In Jiangsu Province, where the economy previously relied heavily on foreign investment, private businesses have grown into one of the driving forces behind its development.

Take Suzhou, a booming city of the province, as an example. The number of private enterprises each with annual sales exceeding 5 million yuan (US$625,000) rose to 3,465 in 2005, from less than 500 in 2000. And there were a total of 92,000 privately-owned companies and 230,000 individual businesses by the end of last year.

Private businesses in Suzhou invested a total of 56.3 billion yuan (US$7 billion) in 2005, accounting for 30.1 per cent of the city's total fixed asset investment.

Sales from the private sector also contributed to 30 per cent of the industrial sectors total, reaching approximately 300 billion yuan (US$47 billion) in 2005.

However, while the private sector is producing greater economic and social benefits to the region, it has also encountered some problems during its development that need to be dealt with.

Private enterprises in the Yangtze River Delta, especially in Zhejiang Province, are mainly involved in original equipment manufacturing or assembling, although the region contributes to about one fourth of China's total GDP. They heavily rely on land, electricity, water and other resources.

When facing resource shortages, private enterprises, especially small and medium-sized ones, will encounter difficulties, said economist Wu Jinglian.

More importantly, many private enterprises in the region today have very thin profit margins.

"The region's private sector is in urgent need of industrial upgrades," Wu said.

According to him, the real industrial upgrade needed is to produce higher profits by improving technology and production efficiency, instead of pure capital investment and scale expansion.

Currently, the development of the private sector in the Yangtze River Delta depends mainly on capital investment, which contributes to 60 per cent of the region's economic growth, while technology upgrades contribute less than 20 per cent, said Bao Yujun, director of the China Private Economy Research Society.

The investment-driven economic growth in the region has experienced a slowdown since the second half of 2004.

"Only through technology innovation, not private enterprises' present role as original equipment manufacturers, can private enterprises win amid higher-level competition in the world market," Bao said.

He stressed that upgrading technology was not a single issue; concepts and systems of private enterprises also need to be innovated.

In addition, governments should create favourable conditions, like a legal environment and market environment, for the industrial upgrade of the private sector.

Local governments could use the experience of Taiwan as a reference, Wu Jinglian said. He added that the situation in the Yangtze River Delta is similar to the four Asian Tigers in the 1980s.

For the growth of the four Asian Tigers, there were two business models: the South Korean government supported big enterprises, and the Taiwan government encouraged the development of small enterprises.

South Korea realized rapid development in the short term, but the costs were too high and it has less development potential. While in Taiwan, a large group of small and medium-sized enterprises, which developed through market competition, played an important role in its economic development. "The Taiwan model is more suitable for the Yangtze River Delta," Wu said.

For better development of the private sector in the region, the committees of the Chinese People's Political Consultative Conference of Zhejiang, Shanghai, Jiangsu and Anhui, jointly set up the Research Society of the Private Economy in the Yangtze River Delta last month, to provide development ideas.

Source: China Daily

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