Private firms powering China economy
By Zhao Huanxin (China Daily)
Updated: 2006-09-22 07:21

After creating half the country's wealth in 2005, private enterprises are poised for an even bigger role in the years ahead, a key government think-tank said yesterday in Beijing.

"The non-State-owned sector is projected to contribute three- fourths of China's GDP in five years, when at least 70 per cent of the country's firms will be privately owned," the Chinese Academy of Social Sciences predicted in its annual report.

While the private sector lurked in the shadows only a quarter-century ago, its current high profile is a testament to the country's support policies, but more equitable treatment is needed, industry representatives said at a seminar to mark the release of the report.

Based on data from the National Bureau of Statistics, the "Blue Book of the Non-State-Owned Economy" revised earlier estimates that domestic private businesses have contributed one-third to China's GDP in recent years.

The latest findings raised their contribution to 50 per cent last year. They also provided eight out of 10 new jobs in non-agricultural sectors.

If the quantum contributed by overseas-funded ventures is added, the private economy accounted for roughly 65 per cent of the national economy in 2005 and the ratio is expected to jump to 75 per cent by 2010, the report says.

Private enterprises have proliferated, especially in recent years, when the government set out constitutional guarantees and policy incentives to buoy the healthy development of the sector and protect the property of entrepreneurs.

As a result, they have galloped into industries once dominated by State-owned enterprises.

For example, private firms generated sales of 797.3 billion yuan (US$101 billion) last year an annual growth of 55 per cent since 2000 in smelting and processing of ferrous and non-ferrous metals alone. They have also invested in sectors such as post and communications, power and coal gas, according to the report.

In tandem, the growth rate of taxes paid by the private sector has by far surpassed that of State companies and the sector has become a major contributor to State coffers.

Over the past five years, taxes paid by private firms grew by at least 40 per cent a year, compared with an annual increase of less than 7 per cent by State businesses.

"In many a local region in China, tax revenue generated by the private sector accounts for over 80 per cent of local government revenue," the report says.

Despite their stellar performance, said Gu Shengzu, vice-chairman of the All-China Federation of Industry and Commerce, private companies still face barriers in securing financing, which was hobbling their development.

Less than 10 per cent of total bank lending goes to domestic private firms while overseas-invested businesses enjoy preferential treatment in taxation and financing, he pointed out.