Largest employer needs a level playing field

China's broad private sector provides more than 90 percent of the 800 million jobs in the world's second-largest economy. That includes 237 million created by domestic private firms in urban areas, 18 million created by foreign-invested firms and 470 million rural jobs (including 210 million created by township enterprises, self-employed businesses and other rural private entities).

In the early years after the founding of the People's Republic of China, most jobs were offered by State-owned companies, which once created a record high of 78.9 percent of total urban jobs in 1976.

However, with reform and opening-up, private firms started to mushroom, creating more and more jobs, and eventually overtaking the State firms as the biggest employer.

However, China's private firms are still not treated equally with their State-owned peers, despite their rising contribution to the country's job creation and economic growth.

For example, many private firms, especially small- and medium-sized ones, are blocked from certain industries, although China's top leadership has constantly pledged to pull down the walls.

Private firms are often unable to help workers get official hukou (permanent residence certificate) in key cities such as Beijing and Shanghai, leaving them at a disadvantage when competing with State firms to hire crucial people.

Most importantly, private firms have limited access to the country's vast pool of bank loans. When China starts credit tightening campaigns, private firms are usually the first hit, with some having to close.

In recent years, a more worrying trend is the advance of State firms in many important sectors, including real estate, squeezing the room for private firms to survive, which reverses the path of reform.

These predicaments are not new to private firms, which have been fighting their way through and making greater contributions to the economy.

The government and all the sectors it controls intrinsically tend to work against private firms, although they have tried to quicken their pacing of opening-up.

So far, State-owned companies are still unable to break the stranglehold by an exclusive inner group. It's hard to deny that a few people have the final say on how to use State companies' profits, which are, under their original definition, national wealth.

This minority group, to some extent together with all the 65 million people working in the State sector, holds most of the bank loans available in China and enjoys a quarter of the nation's industrial profits as well as more than 60 percent of bank profits.

Such a structure is hindering China's growth. It could spur social issues and is not conducive to the establishment of a harmonious society.

Dong Xian'an is president and chief economist at Peking First Advisory Co Ltd.

(China Daily 06/01/2011 page6)