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Editorial: In China, Entrepreneurs Get Much-Needed Seat at the Table

The soundness of an economy depends on the strength of innovation, which in turn relies on whether the entrepreneurs can rise to their full potential.

Top party and government authorities recently issued a document titled “A Guideline About Nurturing a Healthy Environment for the Growth of Entrepreneurs, Promoting Entrepreneurship and Letting Entrepreneurs Play a Bigger Role.” The document has drawn wide attention in business circles: It was the first time central authorities have affirmed the status of entrepreneurs and the value of entrepreneurship. The guideline has been a soothing pill for businesspeople.

Entrepreneurs are the pillars of economic activities. The core of entrepreneurship lies in the businessperson’s capability to push forward economic progress through “creative destruction,” a term coined by Austrian-born economist Joseph Schumpeter (1883-1950).

China’s economy has witnessed decades of rapid growth since its reform and opening-up in the late 1970s, during which entrepreneurs had an important role. But recently, there has been some finger-pointing at entrepreneurs, with some casting doubts about the entrepreneurs’ market transactions and investment activities.

It is true that some businesspeople have to pay the price if their transactions are against the rules. But if what are actually only a few irregularities lead to excessive doubts about regular business activities, and government policies are not in place to clear any confusion, the confidence of entrepreneurs as a group may be undermined.

Businesspeople are an extremely sensitive group. Even subtle changes in their expectations may be amplified in their economic activities. That will affect employment, tax revenue and social stability. The guideline came out in time to clear the shadow hanging over entrepreneurs’ heads. It made clear that authorities will seek to create a transparent and just environment ruled by law.

The guideline is a fresh start in protecting entrepreneurs’ rights with its emphasis on the establishment of institutional systems.

For instance, it said entrepreneurs’ property rights, rights and interests in innovation, and the right to autonomy in business operations should be protected by law.

It also said the authorities should explore a new system to compensate enterprises that suffer losses because of changes in government policy.

The guideline stated that a standard procedure should be established that requires the government to consult entrepreneurs in terms of key economic decisions.

If these measures can be carried out, the foundation of a prosperous and peaceful society will be consolidated.

The Chinese government has been working hard to protect people’s property rights and expand market access in recent years. But in some areas, private businesses still face “glass doors,” which indicates that some of the promised benefits are still not accessible.

As the market applauds the latest guideline to protect entrepreneurs’ rights, it is also hoped that authorities can issue facilitating policy documents to establish detailed rules and systems as promised.

Currently, the most important thing is to ensure the rule of law to protect entrepreneurs’ legal rights. Many property disputes involving enterprises are related to regulators’ excessive power that crosses the line. Numerous corruption cases have shown that when officials try to personally profit through their public power, they often interfere in companies’ normal operations and give companies a hard time. The business owners’ properties, or even personal security, are often jeopardized.

The guideline made clear that entrepreneurs’ autonomy in business operations is protected by law, and “various governments and their staff should not interfere” in order to “largely reduce burdens on enterprises and reduce arbitrary decisions.”

The relations between business and power should be further cleared up in order to tackle corruption. If the boundary between government and the market is blurred, businesses may frequently fall prey to corrupt officials looking for illicit monetary gains. A twisted government-business alliance will not only harm the political ecosystem but will also distort economic behavior. When companies with background power become bullies, enterprises without any government connections have to pull out and take cover. There will be no economic prosperity in such a situation.

The government’s power has to be pulled back in order to prevent officials from exploiting businesses, and also to prevent businesses from hunting for corrupt officials.

The Chinese economy has been shifting from manufacturing to services, and the asset-light model has also become trendy. Entrepreneurs’ expectations have become increasingly influential. In an era of globalization, nations have also been competing for the precious resources of entrepreneurs. Countries that are unfriendly to businesspeople and pinch them hard often have a difficult time making ends meet. Other countries that respect and protect entrepreneurs are often better off and prosperous. China should learn from these lessons from the world.

Protecting entrepreneurs’ rights is vital for a country’s fundamental interests. The government needs to respect entrepreneurs in its efforts to protect businesspeople and promote entrepreneurship. The protection should be based on legal systems that don’t sway when the economy fluctuates. The government should neither indulge nor crack down on businesses as a measure of “macroeconomic control.”

The guideline is a precious document at the right time. The prospects for the Chinese economy will be closely related to how this guideline and its related policies can be carried out.

Hu Shuli is the editor-in-chief of Caixin Media.

 

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