Private Business and Economic Reform in China

Susan Young

• Publisher: Routledge
• Year: 2015
• Print ISBN:
  9781563245015
• eBook ISBN:
  9781317462101
• Topic: Economics
• Subtopic: Government & Business
• Index: Economics

Based on Party and state documents, Chinese newspaper reports and surveys, the Chinese and Western scholarly literature and the author's own fieldwork, this important study examines the private sector as a case study of the mechanics of reform in China, emphasizing the relationships among local officials, private businesses, and central policy. The book traces the growth of private business in China since 1978 and focuses on the interaction between private sector policy and other reforms and examines how this has affected China's political economy.

1 Introduction

DOI: 10.4324/9781315701523-1

After thirty years of “building socialism,” China’s leaders decided after the death of Mao Zedong that they had been building it the wrong way. Those who took over after the end of the Cultural Revolution were disenchanted with the existing cumbersome economic structure and volatile system of leadership and embarked on a course of reform aimed at revitalizing the economy, raising productivity, and delivering a rise in living standards that would prove the superiority of socialism. In spite of some disagreement among China’s leaders over the extent to which the central planning system should be modified, the reforms took the course of increasing individual and local initiative and the power to act on it by transferring some economic functions from the bureaucracy to market forces and increasing the role of the profit motive in economic decision-making. This was a gradual process of experimentation, rather than a sudden switch to a completely new program, but one reform led to another until, by the 1990s, the result had moved far beyond the limited horizons envisioned in 1978.

The development of private business under the reforms clearly illustrates how this process evolved. Greatly reduced after collectivization in the mid-1950s and virtually eradicated during the Cultural Revolution, private business was revived as a quick, easy, and cheap way of alleviating some of the problems of the day: a sluggish economy with inadequate circulation of goods, failure to provide sufficient consumer goods and services to the public, and unemployment. Active encouragement of private business was a major policy shift for the Chinese Communist Party (CCP), which had formerly seen it as a remnant of capitalist society with the potential to engender capitalism of itself. It was something that should be rapidly phased out under socialism. Clearly some sections of the leadership still had grave doubts about the suitability of private business for socialist development, and the reformists took pains to assure them that under China’s now firmly established system of public ownership, a small private economy would not lead to exploitation, inequality, and capitalism because it would be limited by the dominant publicly owned economy and government regulation.

Yet the revival of private business did not take place in isolation: it was part of a complex range of reforms, which began to alter profoundly the very economic and administrative structure that was supposed to limit it. The major reasons for the leadership’s initial support of private business—the need to improve supplies of consumer goods and to provide jobs for peasants released from agriculture by the rural reforms, for urban residents returning from the countryside after the Cultural Revolution, and for new school leavers—became, if anything, more pressing as reforms took effect. This spurred reformists to overcome opposition and persist in encouraging private business. Meanwhile, as the rural economy opened up, and as market forces and the profit motive began to play an increasing role in the cities, too, opportunities for private business increased and its position became more secure. Above all, the reformist ideology stressed economic performance—in terms of increased output and profitability, increasing employment, and rising standards of living—as the main criterion of administrative or managerial success. In this atmosphere, many obstacles to the growth of private business gave way.

Growth and Scope of the Private Sector

This study does not deal with all forms of private economic activity in China, but focuses on businesses that are acknowledged to be private: mainly the sector of privately owned, profit-seeking, full-time businesses known as geti gongshanghu, or getihu (individual businesses), or the larger siying qiye (private enterprises). Getihu are officially defined as individually owned businesses employing up to eight people, including the owner but often discounting family members. Siying qiye are businesses with eight or more employees, owned by individuals, partners, or groups of up to thirty shareholders. Both kinds of business are predominantly engaged in retailing, catering, services, repairs, construction, transport, and light manufacturing. Agriculture is not included in this study, nor, in general, is the rural sideline economy, although the distinctions between specialized rural households (zhuanyehu), joint enterprises or partnerships (lianheti), and getihu or siying qiye are often blurred and the categories overlap. This trend increased in the latter half of the 1980s as there was increasing cooperation across ownership lines and the old categories began to be superseded.

When the reforms first began, only getihu were officially allowed, because of the need to avoid exploitation. According to Chinese sources, the limit of seven employees was derived from passages in Capital where Marx discusses the need for a certain number of people to be employed before the employer can accumulate capital. Marx gives one purely hypothetical example in which the employer has to employ eight people in order to extract enough surplus value to make twice the income of the employees, plus the same again to use as capital. ¹ Although private enterprises quickly exceeded this limit and eventually obtained official acceptance, the issue of their political nature was an important one, and the division between getihu and siying qiye has had a significant impact on the development of private business under the reforms. Private business developed well beyond the marginal, stop-gap role outlined for it in 1978–81, both in its share of economic activity and in the size of enterprises, but the lack of an ideological justification for this growth meant that much of it was hidden or disguised, resulting in complex administrative problems.

Table 1.1 Recorded Private Businesses, 1981–1993 (year-end figures)

Year	Getihu	Siying qiye	Geti qiye in townships and villages
1981	1,827,752
1982	2,614,006
1983	5,901,032
1984	9,329,464		3,295,900
1985	11,712,560		9,253,500
1986	12,111,560		12,332,000
1987	13,725,746		14,730,700
1988	14,526,931		16,091,700
1989	12,471,937	90,581	16,081,200
1990	13,281,974	98,141	16,071,700
1991	14,145,000	108,000	16,788,500
1992	15,339,200	139,600	18,487,200
1993	15,483,000	184,000

Sources: 1981–90: Guojia gongshang xingzheng guanliju xinxi zhongxin, eds., Zhongguo gongshang xingzheng tongji sishi nian (Forty Years of Statistics on Chinese Industrial and Commercial Administration), pp. 164, 158–59. 1991: Zhongguo gongshang bao (Chinese Industry and Commerce), 17 February 1992, p. 3.1992: Zhongguo tongji nianjian (Statistical Yearbook of China), 1993, pp. 113–14. 1993: Interview, ICB, Beijing, December 1993.

Note: Numbers of getihu and siying qiye are based on Bureau of Industry and Commerce figures. Numbers of geti qiye in townships and villages are based on Ministry of Agriculture figures (source: Zhongguo xiangzhen qiye nianjian [Chinese Township Industries Yearbook], 1993, p. 147). The two sets of figures are not mutually exclusive.

Most of the official reports and policy discussions on the private sector in China use statistics from the State Statistical Bureau or the state Bureau of Industry and Commerce (ICB), a bureau set up directly under the State Council to administer business activity under the reforms. These figures present the private sector as fairly small, both because they compare it with the huge urban state sector and because they are urban-based and have not yet managed to reach down to include all rural private businesses. Even so, the figures are impressive for a sector that was virtually nonexistent (only 150,000 private businesses were recorded in 1978) when the reforms began. By late 1993, there were over 15.6 million getihu and siying qiye registered with the ICB (see Table 1.1). In 1991 getihu made up 79 percent of industrial enterprises, although since most were very small they only produced 5.7 percent of gross industrial output value. ² In the same year getihu made up nearly 86 percent of retail, service, and food service outlets in China ³ and 19.6 percent of retail sales volume. ⁴

A significant division emerged in the nature and role of the urban and rural private sectors. In the cities, private businesses clustered in the small-scale retail, service, or food service industries, which enhanced the impact of private businesses on public life and public opinion, but was also the reason for the popular, critical image of the getihu as being engaged in these essentially nonproductive trades. Contrary to this popular image as presented in the media, over 75 percent of private businesses actually developed in rural areas, after reforms promoted a surge in rural enterprise growth (see Figure 1.1). Of these nearly 40 percent were engaged in manufacturing or processing industries. The private sector has played an important role in the development of township enterprises (xiangzhen qiye): indeed, the statistics recorded by the Ministry of Agriculture for these (mainly rural) enterprises alone include many more private businesses than are listed by the ICB for both rural and urban enterprises. These figures show 18.48 million private businesses (geti qiye, used for private businesses of any size) in townships and villages by the end of 1992, making up 88.4 percent of township enterprises and providing 44 percent of jobs. ⁵ The private share of the gross output value of township enterprises rose from 6.9 percent in 1984, when figures were first released, to 27 percent in 1992. ⁶ It should be borne in mind that both the urban and rural figures list only those businesses formally acknowledged to be privately owned. In some localities many “village-run” and joint enterprises are in fact privately owned. The proportions vaiy widely from place to place. In some Sichuan townships visited by the author it was obvious that nearly all joint enterprises were private, and local businesspeople estimated that the same could be said of about 50 percent of the village-run enterprises; ea...

Table of contents

• Cover
• Halftitle Page
• Studies Page
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• List of Abbreviations
• List of Abbreviations
• 1. Introduction
• 2. Reviving Private Industry and Commerce
• 3. Responses to the Private Sector Revival
• 4. Overcoming Material Constraints
• 5. Changes in the Private Sector
• 6. The Private Sector and State Control
• 7. Into the 1990s: Reassessing the Role of the Private Sector
• Bibliography
• Index