The Revival of Private Enterprise in China
The Revival of Private Enterprise in China
Article Type: Bookshelf From: Journal of Small Business and Enterprise Development, Volume 15, Issue 4
Edited by Shuanglin Lin and Shunfeng Song,Ashgate,Aldershot and Burlington,2007,290 pp.,ISBN: 978-0-7546-4892-5,
Keywords: China, Business enterprise, Entrepreneurship,Organizational change
China’s economic reforms started in rural areas in the late 1970s, with initiatives targeting collective enterprises. The year 1992 was the watershed of change in China as the concept of market economy was eventually endorsed in the Chinese constitution. This change has helped private enterprises to emerge and become the main driving force behind Chinese economic growth. The Revival of Private Enterprise in China is a new addition to the growing literature that tracks the development of the private enterprise sector in China. This book is a collection of selected conference papers that were presented at the International Symposium on Private Enterprises and China’s Economic Development, held in Beijing in 2004. Contributors to this edited volume are mainly academics from universities in the USA and China.
Despite their phenomenal growth, private enterprises in China faced huge challenges, including access to external funding, effective protection of private property ownership, excessive levies from local governments, and lack of managerial capabilities. Against this background, the book addresses the following pertinent research questions:
What are the main obstacles to private enterprise development in China?
What measures should be taken to promote private enterprise development?
How can private enterprises help China mitigate its macroeconomic problems,such as unemployment, income inequality, financial disintermediation, and unhealthy economic cycles?
What lessons could China learn from other countries in promoting private enterprise development and privatisation?
The book consists of an introduction and 16 chapters which are organised into five parts. The first part concerns private enterprises and economic development and comprises three articles. The first chapter is the editors’introduction to the volume. In chapter two, Li, Song and Tan examine whether differences in performance between state-owned enterprises (SOEs) and non-SOEs result from higher efficiencies in utilisation of resources or from resource reallocations. The results of the panel data analysis at the provincial level indicate that the decline in output for SOEs is not due to less able human capital inputs, but more to inefficiencies in organisations. In the next chapter, Phillips and Shen investigate whether the size of the state-owned sector is responsible for regional disparities in economic growth. Their results show a strong negative correlation between the size of the state-owned sector and local economic growth. Lin’s chapter examines the effects that resource allocation among enterprises of different types can have on economic growth. It emerges that provinces which invested more in private enterprises grew faster than those that invested considerably in state enterprises.
The second part contains four chapters with a focus on government and private enterprises. In chapter five, Wu uses the case study of Wenzhou to explore interactions between the local government and private enterprises in the development of private property rights. In the next chapter, Tian and Lo complement Wu’s study and find that the unsatisfactory performance of the private sector during the 1980s was attributable to the discriminant legal environment within which private property rights were inadequately developed. In chapter seven, Hou compares reform experiences between China and Russia with respect to entrepreneurs, market, and the state. The author argues that the profit-seeking entrepreneurial “class” never existed in Russia. In the last chapter of this part, He reviews relevant experiences of enterprise development and government functions in the USA and draw some pertinent lessons for China.
The third part of this volume focuses on financial reforms, openness, and private enterprise development and incorporates three chapters. In chapter nine,Lu, Thangavelu and Hu provide a tentative diagnosis of non-performing loans in China’s banking sector during the late 1990s. The authors argue that problems occurred because the banking sector “gambled for resurrection”in the hope of ex post government bailout. Chapter ten focuses on experiences of public venture capital in the USA and China. Zhao, Bao and Chen adopt an unusually broad definition of public venture capital, consisting of a variety of grants, loans, subsidies and equity investment at central or local levels of governments. As a result, the discussion is somewhat vague and unfocused. In chapter eleven, Huang, Wu and Forsyth discuss the post WTO entry challenges faced by private enterprises.
The fourth part of the book consists of three chapters with emphasis on ownership reforms and privatisation. In chapter 12, Goldman examines the privatisation of the Russian state industry and argues that the key lessons to be learned are that factory directors should not automatically take over as owners and that the public at large should derive some real material benefit from the privatisation process. In the next chapter, Xu, Zhu and Lin examine the effects of political control and agency problems on the financial performance of reformed enterprises. The authors conclude that firm performance is positively affected by the lessening of control and that ownership structure also affects performance. In chapter 14 Yu reviews theories and empirical evidence on the performance of “private-for-profit hospitals”, as reported in the US literature.
The final part of the book focuses on corporate governance and efficiency,and includes three chapters. Chapter 15 focuses on ownership structure and corporate control, with respect to the firm’s relationship with banks, the stock market and the government as well as relationships between managers and employees. In chapter sixteen, Kuo examines the efficiency of SOEs and finds a satisfactory progression during the 1994-2001 period. In the final chapter of this book, Tian examines the prospect of a private economy in China and offers an optimistic note in that “China will take radical reform measures to abolish all kinds of discriminations against the private economy in the coming years” (p. 282).
Overall, the topics investigated in this book should be of interest to those who follow the development of the Chinese economy in general and the private sector in particular, including policy makers, academics, researchers, students and entrepreneurs.
Jun LiSchool of Entrepreneurship and Business, University of Essex, Essex, UK
