Private Business Boosts China’s Economic Development


Since the policy of reform and opening-up in 1978, China has traveled a course of high-speed development on its way to becoming the economic power it is today. In 2013, as the world’s second largest economy, China not only ranked second in receiving foreign direct investment and third in outbound direct investment, but also became a middle income country. Like other non-public enterprises in China, private enterprises have developed vigorously from nothing, energetically boosting China’s economic development.


Contributions from Private Business

Judging from National Bureau of Statistics data, China’s private enterprises have made enormous economic contributions to employment, investment and operations, as well as imports and exports.

Private enterprises are now one of the major employment channels in China. From 1990 to 2013 the number of people employed in private enterprises grew from 1.7 million to 125 million, representing a national employment proportion increase from 0.26 percent to 16.27 percent. In 2013, private enterprises in urban and rural areas employed 82.42 million and 42.79 million people respectively, accounting for 21.55 percent and 11.05 percent of urban and rural employment.

Private enterprises, as important investors, have become one of the major sources of China’s fixed-asset investment. From 2006 to 2013, fixed investment from private enterprises increased from RMB 1.93 trillion to RMB 12.12 trillion, the national proportion increasing from 17.52 percent to 27.16 percent, and its ratio of domestic enterprises’ fixed investments from 19.43 percent to 28.58 percent. In 2013, China had 12.539 million private enterprises, in which there were 24.857 million investors, taking up 19.85 percent of the population employed in the private sector.

Well-managed private enterprises have boosted the country’s economic growth. From 1998 to 2013, among industrial enterprises above a designated size, the number of private enterprises increased from 10,000 to 195,000, representing a surge in the national proportion from 6.46 percent to 55.3 percent. The assets of private enterprises soared from RMB 148.7 billion to RMB 17.48 trillion, or to 20.55 percent from 1.37 percent of the national proportion. Their main business income swelled from RMB 184.6 billion to RMB 32.97 trillion – from 2.88 percent to 32.04 percent of the national proportion. In addition, private enterprises are sustainably profitable, so profit skyrocketed from RMB 6.725 billion to RMB 2.09 trillion, increasing from 4.61 percent to 33.23 percent of the national proportion. Private enterprises’ return on assets and profit ratio of sales increased from 4.52 percent and 3.64 percent to 11.94 percent and 6.33 percent, respectively.

Moreover, private businesses continually expand their import and export scale. It was not until the late 1990s that China opened trade management to private enterprises, allowing them unprecedented access to foreign trade. In 2013, the exports and imports of China’s private enterprises respectively reached RMB 863.3 billion and RMB 436.8 billion, taking up 39.06 percent and 22.39 percent of the national figure. General trade has become the most important mode of trade for private business. In 2013, private enterprises’ exports and imports of general trade were RMB 630.5 billion and RMB 261.456 billion respectively, accounting for 57.97 percent and 23.56 percent of the national proportion. What’s more, China’s private enterprises have become the main source of the country’s trade surplus. Their favorable balance of trade in 2013 was US $426.6 billion, far more than that of the national level, which stood at US $259.7 billion. Trade surplus of general trade of private businesses reached US $369 billion, while the country’s general trade saw a trade deficit of US $22.2 billion.


Momentum for Development

Over a relatively short spell of 30-odd years, private enterprise has become one of the sources of motivation behind China’s booming economic development. There are many reasons for this:

First, China has launched a number of reforms and maintained a basic economic system with the public-owned economy at the core, and in cooperation with other ownership economies. Over the years, governments at all levels have conducted state-owned economic reform and supported private economic development. For instance, The Decision of the Central Committee of the Communist Party of China on Major Issues Concerning the Reform and Development of State-Owned Enterprises was released in September 1999. In February 2005, Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy was unveiled.

Second, market competition offers fair opportunities for private enterprises, promoting innovation and development. Since the reform and opening-up drive, China has carried out a number of measures, such as invigorating large enterprises while relaxing control over small ones, acquisition and reorganization, leasing and contracting, as well as selling bankrupt enterprises. State-owned enterprises have gradually withdrawn from some competitive fields, while non-public enterprises, such as private business, have entered, significantly improving their resource allocation. Under the circumstances of fair market access, fierce market competition and rising factor prices, China’s private enterprises have to exploit potentialities and evolve from being factor-driven to being efficiency-driven, even innovation-driven in recent years. From 2011 to 2013, for industrial enterprises above a designated size, private enterprises’ research and development (R&D) or full-time equivalent increased from 345,095 person years to 523,551 person years, a national proportion increase from 17.8 percent to 20.99 percent. The number of invention patents applied for by China’s private enterprises rose from 29,210 to 50,653, a national proportion increase from 21.66 percent to 24.69 percent. Private enterprises’ effective invention patents rose from 41,366 to 74,757, or from 20.57 percent to 22.29 percent of the national proportion.

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