Editorial: China Must Address Imbalanced Business Environment
The business environment has recently become a hot issue being discussed by Chinese governments and the public. Lou Jiwei, chairman of the National Council for Social Security Fund, also talked in a recent speech about the improvement of the business environment. It is an important task for governments of all levels to create a business-friendly environment with new concepts and new methods, as China shifts from rapid economic growth to quality growth. Currently, the situation varies in different parts of the country — some places have been lagging behind others in this regard, just as their economies are.
Lou, who is also a former finance minister, said that generally speaking, China has significantly improved its business environment in recent years through further opening-up to the outside world, pushing forward commercial registration reform, and promoting judicial system reform.
The World Bank report “Doing Business 2018” has shown this. The report ranked the Chinese mainland 78th out of 190 economies in the world, up 18 places from 2013. However, the ranking is the same as last year, and it is still far behind Hong Kong. Of the 10 indicators the World Bank used in compiling the rankings, the Chinese mainland does well only in enforcing contracts, registering property, resolving insolvency and getting credit. The other six indicators all performed poorly. For instance, the Chinese mainland ranks 119th in protecting minor investors, 130th in tax burdens, and 172th in getting construction permits.
Actually, measuring the country as a whole may not present an accurate picture of the differing performances of different regions across the country. In China, the difference between the two ends of the spectrum is large. Multiple research reports indicate that richer cities in eastern coastal areas of China rank high in the business-friendliness list. The eastern and central areas have improved a lot in recent years, but the western areas and the rust-belt areas in northeastern China are not doing well.
Still, all regions in China share common problems in terms of government honesty and efficiency, financial services and funding costs, market environment, and agency services. But the seriousness of these problems from region to region varies.
Actually, it does not take academic studies to learn about the business environment of different places. In the internet age, good news doesn’t remain local, and bad news can fly thousands of miles instantly. In Zhejiang province and Shenzhen, for example, the local governments are known for their high efficiency in dealing with business, and many are famed for their flexibility and business friendliness. The good business environments help boost the local economy, which in turn encourages the local governments to further improve their regulatory environments to attract more businesses.
However, some other places, like Northeast China and Shanxi province, are known to be rigid in dealing with businesses. Northeast China has often being illustrated as notoriously unfriendly to investors, though many local officials may argue the generalization does not represent the complete picture. But recent reports about its tourist resorts eyeing money more than respecting tourists, and a local businessman complaining about government interference in his ski resort, have only added fuel to the debate about the struggling local economies. These areas must first dispel the feeling of hopelessness among officials and the public.
Although everyone should be responsible for improving the business environment, the government should shoulder the greatest weight.
The imbalance of the business environment across the country also has something to do with the various economic development levels. In the earlier stages, local governments often rely on cheap land, preferential taxes and infrastructure convenience to attract business investments. But such a policy cannot last. The country’s economy has been transforming from manufacturing to the service sector, and even manufacturing has been upgraded to high-tech and higher value-added. The local governments must follow this trend and provide corresponding new measures to improve their business attractiveness. Changing the business environment is like changing customs — it takes continuous and long-term efforts.
Next, governments at all levels should smooth their relationships with their respective businesses. They need to further deregulate, build a service-oriented government, and actively strengthen the openness of government affairs and transparency in decision-making to create a safe, reliable, fair, transparent and predictable business environment. In places where business conditions are poor, it is especially important to catch up. Otherwise, not only new investors will stay away, the local entrepreneurs may also give up and leave.
Deepening reform in an all-around way will raise the overall operating environment in China. Raising the level of the rule of law is the top priority. Therefore, it is necessary to strengthen the protection of property rights, including intellectual property rights; effectively implement the relevant policies already put in place by the central government; crack down on criminal acts that infringe on property rights; and protect the legitimate rights and interests of all kinds of enterprises. While the improvement of the rule of law is a national action, enforcement will still fall on the shoulders of the local governments. If there are no rules, who will dare to come and invest? In areas with residues of a heavily planned economy, extra vigilance should be exercised against “tangible hands,” or government interference that affects the interests of business and citizens.
To create a favorable business environment, appropriate measures should be taken to address different problems. The central government needs to deepen economic and political reforms, and continue to introduce targeted reforms in the fields of land system, industrial structure, property rights protection, market access and investment control. It should also try to reduce the burden of taxes and fees for companies. The local and provincial-level governments should deepen reform actively. It is not difficult to understand that areas in which the business environment is poor are precisely those where institutional reforms have lagged behind. Such areas, even if they have seemingly appropriate industrial policies, will be difficult to implement because of the lack of market players and smooth institutional mechanisms.
It should also be pointed out that with the economic and social development, China’s original opening-up advantage has gradually disappeared, and foreign capital no longer enjoys special treatment. China urgently needs to raise the level of opening-up to the outside world. At present, China needs to listen carefully to calls and even criticism from foreign companies. Do not think that China no longer needs foreign investment as badly as before because the country has developed. Foreign investment is particularly important to the development of China’s hinterland. Improving the business environment is an effective means of attracting foreign capital and preventing capital outflow.
Accelerating the construction of a modern economic system and building a country governed by the rule of law will fundamentally improve China’s business environment. After all, local governments have to lead their life on their own. The advanced areas should raise the bar to the international level and be aware that there is still a long way to go; the backward areas should adopt a sense of urgency, as they cannot just count on other people to help.
The Chinese economy is undergoing a phase of change. Whether the local and provincial-level governments can create a sound business environment will be a yardstick to measure the success of the transformation of government roles.
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