Caixin
Jul 27, 2020 06:05 PM
OPINION

Editorial: To Cultivate Entrepreneurship, Ensure Equal Treatment for Private Businesses

A worker works on a production line Friday at an auto glass manufacturer in Weihai, East China's Shandong province.
A worker works on a production line Friday at an auto glass manufacturer in Weihai, East China's Shandong province.

As the coronavirus pandemic rages on and the external environment becomes more fraught, people in China are closely following developments at domestic companies.

At a recent discussion with business leaders, President Xi Jinping stressed the need to “properly protect market entities, stimulate their dynamism, carry forward the entrepreneurial spirit, and push for enterprises to play bigger roles and realize greater growth.” He added that China “must support the dedication and long-term intentions of entrepreneurs, and foster their perseverance in establishing stable businesses.”

The discussion felt both timely and targeted. At present, Chinese businesses face many difficulties and challenges, with some grappling with wavering expectations and a lack of confidence. If we really want to ensure their stability, we need the relevant departments of all levels of government to implement the spirit of the meeting. Even more, we need to commit to the arduous task of building a series of ownership mechanisms and legal safeguards.

During the last 40 years of economic reform, China has gradually established a framework of a market economy that has fostered the maturity of all sorts of business entities. But we should also recognize that the economy has begun a painful transition over the last few years. The downward pressure continues to grow, and Covid-19 has taken a huge toll on businesses both at home and abroad. Private firms, small-to-midsize businesses and individual traders have been the hardest hit, with many even going bankrupt.

Although the government has announced a number of relief policies, many businesses operations are still battling volatility and uncertain futures. How dramatically the domestic and international picture has changed since China’s central government held the last discussion with business leaders in November 2018.

Entrepreneurs can’t enjoy stable businesses without confidence, just as China can’t operate smoothly without strong businesses. As the economy struggles through this transitional phase, domestic companies in key fields like microchips and aviation are chasing world-leading status and require large amounts of investment and long-term accumulation. If we cannot create stable business conditions and thriving companies, China’s economy will find it tough to navigate these changes smoothly, and it will be harder to develop an innovation-driven nation.

The pandemic has merely exacerbated the many obstacles to development that Chinese businesses have been experiencing for a long time. Stabilizing their expectations is not a new topic. In the last few years, the central government has vowed to protect property rights, expand market access, foster the principle of competitive neutrality and improve the business environment.

However, private businesses have been dogged by deep-seated systemic discrimination. Some localities have required banks to provide lists of private enterprises that have taken out loans, and required state-owned enterprises (SOEs) to provide lists of their privately owned suppliers. The unspoken implication is that banks and SOEs are not welcome to foster commercial relationships with private firms.

Discrimination has had a severe and negative impact on industrial structures and business behavior. Many entrepreneurs have unintentionally dug deep into the real economy, fostering undue speculation and a widespread mindset of “take the money and run.” Some have even falsified their finances in order to deceive stock markets into listing them.

If we want to create a community of private entrepreneurs with a long-term commitment to stable, upright business development, then we need to have plans at the government level, ensure they are implemented thoroughly, and prepare effective rescue measures.

Business confidence ultimately depends on entrepreneurs’ overall expectations of China’s future reform and opening up. This requires us to both continue the deeper reforms promised at the Third Plenum of the 18th Party Congress, and properly implement the central government’s series of well-received documents on protecting property rights, fair competition, and strengthening the rule of law. The fact that these documents are binding will strengthen public trust in the government and convince entrepreneurs that the state has a long-term commitment to protecting market entities.

Supporting entrepreneurs’ demands that we established laws, regulations and policy systems based on competitive and ownership neutrality. Many scholars and business owners say that China’s deep-seated culture of managing property rights, market access and resource allocation depending on the size and standing of each company will only disappear when our laws and policies annul a strict separation between public and private enterprises.

Instead, they recommend that we should gradually dilute and finally abolish China’s existing categories of business ownership and replace them with something that applies equally to all. There is a pressing need to systemically eradicate the ownership discrimination and differential treatment that persists in the country’s legal and political systems.

Recently, China’s Supreme Court and the National Development and Reform Commission jointly issued recommendations for “providing judicial services and safeguards to improve the socialist market economic system in the new era.”

The document suggests “using the opportunity presented by the enactment and implementation of the civil code to timely expand judicial explanations and amendments, and abolish regulations that differentiate market entities according to their ownership systems and treat privately operated businesses inequitably.” Although getting rid of ownership labels won’t completely root out discrimination, it is a positive first step.

Supporting entrepreneurs also requires better, stronger legal safeguards and rescue measures. Despite the flurry of documents coming out of Beijing, it is common for some officials to wield the power of public office to infringe the legal rights and interests of businesses.

The aforementioned recommendations actively respond to several prominent legal issues concerning companies, such as official violations of property rights and illegal shutdowns, detentions and account freezes. They say China must stringently regulate cases relating to the preservation and management of property; effectively manage mishandled cases and normalize dispute resolution mechanisms; establish self-perpetuating mechanisms for inspecting property, financing and compensation; demand payment for violated or misappropriated private property according to the law; and improve systems for returning or compensating businesses for stolen property.

In the last few years, a number of previously mishandled cases have been redressed, with social effects. Yet many cases are still waiting to be heard. Due to the passage of time and the complex web of interests, they are hard to manage. But judicial authorities can still embrace these difficulties and send a positive signal by hearing them.

Entrepreneurs have the most economic sense of any social group. They will verify the effectiveness of government policy through their specific, granular experiences. Their mood is affected when their peers experience unfair treatment. They are capable of forging ahead, but also capable of proceeding with extreme caution.

If we really want to support them, the key is to correctly manage the relationship between the government and the market, and let the market fully play a decisive role in resource allocation. In this way, China’s firms will become dynamic market entities worthy of the name. Only then will our business leaders become more confident, vibrant, and competitive, allowing their innovation and intelligence to flow freely.

Contact translator Matthew Walsh (matthewwalsh@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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