Starting out with nothing, reaping rich rewards in market

By Chen Dun (China Daily) Updated: 2014-05-20 07:01

The abolition of minimum capital requirements for company registrations is a sign of how things are changing.

The company law, revised in 2005, greatly reduced the amount of capital required for company registrations, but it didn't eliminate it. The minimum registered capital requirement for limited liability companies was 30,000 yuan. That for sole proprietorships was 100,000 yuan, while the minimum was 5 million yuan for an incorporated company.

Starting out with nothing, reaping rich rewards in market

Top 10 world's most admired companies

Top 10 largest public companies in the world

Those amounts were just large enough to deter some would-be entrepreneurs, especially for micro-sized and small businesses and high-technology enterprises.

More startups under the new rules will create more jobs and alleviate the pressure on the job market as the country urbanizes.

Reform will also help private capital flow into emerging industries and new service sectors, and that will support China's industrial transformation and satisfy the increased demand for service industries in the process of urbanization.

Elimination of capital requirements will also enable the market to play a decisive role in the allocation of resources.

From the perspective of investors, ending the minimum capital requirement does not mean that businesses can operate irresponsibly. Rather, it means that since the government's role is shifted to the supervision of operations, businesses' reputations will be even more important.

To facilitate its supervisory role, the government should continue revising laws and regulations and reduce companies' operating costs to ensure that reform proceeds smoothly. Three issues deserve priority. They are:

Establishing and operating a credit database for businesses. This information will allow investors to learn about the creditworthiness of all companies. And it will prompt enterprises to pay close attention to their credit information.

The government doesn't need to evaluate credit information itself, but it can provide information for such a database - for example, whether a company has honored contracts or been the target of administrative penalties. Providing that kind of information will help the government fulfill its supervisory role.