Resilient growth engine crucial to prosperity

The remarkable growth of China's private economy over the past three decades has been crucial to making the Chinese economy the world's second largest.

More importantly, however, policymakers should better tap into the huge potential of the private sector to help the country transform its investment and export dependent economy into a consumption-driven one.

Latest statistics show the number of private enterprises has soared from 4.3 million at the beginning of the 11th Five-Year Plan (2006-2010) to more than 8.4 million by last September.

These private companies neither enjoy the preferential treatment the government used to attract numerous foreign investors, nor receive policy support strong enough to send 21 State-owned enterprises (SOEs) into the club of the world top 500 companies in 2010.

The private sector has not only managed to survive the entire financial and economic crisis at home and abroad, but also thrived to account for more than half of the country's fixed-asset investment.

Moreover, it hired over 180 million workers last year, 60 million more than it did five years ago.

For a country with 1.3 billion people, such a source of job growth is indispensable, even though demographic changes point to a shrinking labor supply in only a couple of years.

The structure of the private economy also means that it can play a bigger role in improving the overall structure of the Chinese economy and boosting domestic consumption.

On the one hand, more than two-thirds of private enterprises are doing business in the service sector while most of the others are industrial enterprises. Hence, further expansion of the private sector will facilitate the country's efforts to raise the added value of the service sector as a share of GDP. The service sector accounts for only 43 percent of the country's GDP.

It is generally believed that faster development of the service sector will enable China to significantly reduce its dependence on smoke-spewing factories for economic growth.

On the other hand, a booming private economy may bring about more diversified and better service than big State companies or foreign business giants can provide for Chinese consumers.

Despite the obvious importance of the private economy, unfortunately, there is no lack of head winds on their way to hard-won progress.

For instance, the 4-trillion-yuan stimulus China rolled out to cushion the economy against the global financial crisis in late 2008 has recently given rise to talk that the State sector is expanding at the cost of the private economy because most of the fund flowed into the former.

In addition, latest salary data show that those in non-private firms on average earn as much as 1.8 times of those in the private sector - for no productivity reasons.

But if policymakers level the market playing field, the private sector can be expected to grow even bigger and stronger for the long-term benefit of the national economy.

Zhu Qiwen is a commentator with China Daily.

(China Daily 06/01/2011 page6)