Caixin
Aug 02, 2021 06:04 PM
OPINION

Editorial: Understanding the ‘Fish-Water’ Theory

Liu He. Photo: Xinhua
Liu He. Photo: Xinhua

The national small and midsize enterprise (SME) summit forum on “professionalization, refinement, specialization and novelty” took place Tuesday. In the speech, Liu He, a member of the Communist Party of China’s (CPC) Central Committee Political Bureau and vice premier of the State Council, called for creating a good environment to facilitate the development of SMEs. “Entrepreneurs are like fish,” Liu said, “When the temperature of the water is right, the fish will come.” As a vivid illustration of the business environment, the “fish-water theory” applies to all Chinese companies, including SMEs. Under the current complex and changeable situation, the theory has attracted wide attention and its promotion is relevant both in time and in practice.

Liu also pointed out that “in order to achieve high-quality development, we must adhere to the economic system of the primary stage of socialism and unswervingly consolidate and develop the public sector and encourage, support and guide the private sector.” Over the past years, new major policies have been successively launched. However, the ways that people understand them differ, causing confusion among entrepreneurs and shocks in the capital market. To address these concerns, a clear and correct response from the government is needed. As China is still in the middle of transforming its growth momentum and is under great pressure from the pandemic, it is likely that its economic growth will slow in the second half of the year. At this time, it is especially necessary to stabilize the expectations of market entities. When introducing major policies, we must be extremely cautious and consciously make scientific and democratic decisions according to the law.
In recent years, in the view of the increasingly complex and grim international situation, decision-makers have begun to attach great importance to the relationship between development and security, something that Liu He linked to business environment in his speech: “In the new stage of development, we coordinate the relationship between development and security, with the aim of safeguarding fair competition, promoting healthy and orderly development of capital, protecting the interests of consumers and better serving the construction of a new development pattern,” Liu said, “Objectively, this will also create a good development environment for SMEs.” Indeed, the maintenance of development and that of security are fundamentally unified. On the one hand, security is a prerequisite for development. Notably, as the digital economy is ascending, some platforms show more and more attributes of social infrastructure, and the mass data on the platforms are also increasingly related to national security. Enterprises need security to survive and produce greater social value. On the other hand, only through development can security be guaranteed. By virtue of reform and opening up, China has overcome the limitations posed by the once extremely unfavorable geopolitical environment, and its national strength has reached an unprecedented level thanks to “its shift of the focus of work to economic construction.” In this sense, “development is of paramount importance” still holds true, and the fruits of development should be cherished.

The direction of creating a good business environment is clear, which is “adhering to marketization, legalization and internationalization,” as Liu said in his speech. On the contrary, it is absolutely not conducive to China’s security that power participates in the market, with CPC and government officials regulating the market according to their own will rather than the law. China must not, consciously or unconsciously, return to the old closed road of development, as this will definitely not help China’s security. At present, the rule of law is particularly needed. The legal system of China’s market economy has been established, and the idea that “all is permissible unless prohibited in the market” and “the government cannot do anything unauthorized by the law” are deeply rooted in the hearts of the people. The rule of law provides stable expectations for enterprises and reduces transaction costs, and the era when enterprises only followed “the law of the jungle” is far behind us. Our modern market economy is certainly ruled by law, and in the market, enterprises must abide by the law and respect public order. No enterprise has any privileges above the law, no matter how many jobs it has created, how much tax it has paid and how socially influential it might be.

Innovation was the main topic of this summit forum. China has long regarded building an innovative country as its strategic goal. However, with the deterioration of Sino-U.S. relations, the U.S. has tightened its containment on China in terms of core technologies, which can only be overcome through vigorous innovation among domestic companies. Innovation cannot be achieved without the continuous investment of resources and, more importantly, a business environment based on the rule of law. If intellectual property rights are not protected and the businesses and models not prohibited by the law lack policy protection, how can enterprises maintain any enthusiasm for innovation?

The key to optimizing the business environment is to clarify the boundary between the market and the government, which also happens to be at the core of the reforms of China’s economic system. The reform to streamline administration, delegate power, strengthen regulation and improve services has borne fruit, but there is still a lot more room for further implementation and the results must be consolidated in a timely manner in the form of law. In some places, some officials use public power for private purposes, such as interfering in the normal operations of companies and even stealing their legitimate property. Where this is happening, the “temperature of the water” is obviously unsuitable, so naturally, no fish will come, and those already in the water will either leave, live on in degradation or suffocate in the muddy water. The growing north-south economic disparity is essentially caused by the gap in the quality of the business environment.

Thus, to create a good business environment, great importance should be placed on the rule of law. What is meant by the rule of law, is first and foremost, to govern according to the law. Major reforms must be conducted and policies must be formulated based on the law. In the context of the digital economy, new businesses and models continuously emerge, and such issues as antitrust, whose connotations are different from those of the industrial society, have become global challenges. Laws and policies dealing with businesses and models need to be improved, and illegal acts of enterprises must be rectified urgently. However, the bottom line is that governance should always be based on the law.

Chinese entrepreneurs pay close attention to policy trends, but when it comes to judging the business environment, they tend to rely on personal experience, not the law. One case, whether it is positive or negative, will greatly affect the formulation of a series of documents. Therefore, the trial of every case should stand the test of time, and wrong or false convictions must be avoided. A few years ago, the central government reexamined wrong and false convictions involving entrepreneurs, receiving wide recognition from society. Efforts should be made to continue this work. It is not only about “showing the people justice and equity in every judicial case,” but it can also work as a strong warning to the trial of current cases. For highly controversial cases, we should strengthen openness and transparency as far as possible and convince people through reason rather than with power.
A sound business environment will create institutional conditions for China’s economic transformation and will be a touchstone for building a country under the rule of law. The public expects more wide-ranging and vital development of the Chinese economy and the establishment of a home for both big and small “fish,” where entrepreneurs can explore and innovate without distraction. If this becomes reality, China’s security and further development will be promising.

Contact editor Michael Bellart (michaelbellart@caixin.com)

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