On “State Expansion and Private Sector Decline” and Monopolies

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This post was last edited by Salt Seller on 2015-11-23 at 10:16. Talking about “state dominance over the private sector” and monopoly. Talking about “state dominance over the private sector” and monopoly. Watching the military parade during National Day – what a spectacular sight it was, truly magnificent and inspiring! At that moment, I was thinking about a question, a very fundamental one: how were the great achievements of New China over these 60 years accomplished? How did we achieve the remarkable success of reform and opening up over the past 31 years? Why do we experience great social prosperity and significant industrial development? Just as we began to reflect on our corporate culture, we wonder why we are successful and where we come from today I believe that Comrade Deng Xiaoping’s policies of reform and opening up, the promotion of market mechanisms, and the active development of the private sector have played a crucial role, and are even the fundamental driving forces behind these developments; I doubt that many people would deny this. Following this logic, to achieve the great rejuvenation of the Chinese nation, it is necessary to pursue further reform and opening up, strengthen the trend toward marketization, and give even greater impetus to the development of the private economy. However, many recent economic developments and policy trends show signs of a shift toward state dominance at the expense of the private sector, which has even triggered significant reactions from all sectors of society. Regarding these related issues, I would like to share my personal views and experiences to discuss and exchange ideas with everyone. I. The background of \"state dominance over the private sector\" The recent trend of state dominance over the private sector is closely linked to the financial crisis. There are various opinions among experts regarding the causes of this financial crisis. In my view, there are significant differences between the reasons in the United States and those in China: in the U.S., marketization has gone too far, with a lack of proper regulation, while in China, planning has been excessive, state control is too strong, and in some industries monopoly situations exist; moreover, the level of marketization is still severely insufficient. But what’s the result? Some of our state-owned enterprises and monopoly institutions are looking for excuses for themselves, claiming that the reason why China’s economy has been less affected by the crisis and is doing well is due to monopolies and state control – it seems that they still think **monopolies are a good thing**. Moreover, there is now a trend toward further consolidation of monopolies, an increase in barriers to entry within certain industries, and a greater allocation of policy resources to state-owned monopolistic sectors. The industries and enterprises that benefited from the 4-trillion yuan economic stimulus program are typical examples of this; there is a growing tendency toward nationalization in sectors such as railways, highways, and airports. This trend is even more evident in recent policies and economic developments, such as state-owned enterprises increasing their investment in real estate in order to acquire land at high prices. This deserves our close attention. Theoretically, one of the most fundamental theories in macroeconomics is that when **investment increases, there is an “crowding-out effect” on private investment as a result of the interactions between the IS-LM curves in the macroeconomic system**. It can be said that theory represents a law that reflects economic phenomena, and this law is independent of people’s will. Especially during financial crises and economic recessions, when countries adopt policies to stimulate the economy, it leads to a decline in private investment. Is such a pattern also present in China? It now seems to be in line with actual developments. II. Potential harms of \"state advancement and private sector retreat\" 1. China’s economy will continue to rely on exports and investment. As long as this trend of \"state expansion at the expense of the private sector\" continues, with the share of the state-owned economy keeping rising, it will be very difficult, if not entirely impossible, to achieve a transformation of China’s economic model and reduce its reliance on exports and investment. It is actually very difficult to truly stimulate domestic demand and improve people’s livelihoods. 2. The unfavorable dual economy structure (with strong state-owned enterprises and weak private enterprises) will continue to persist; capital cannot be effectively directed toward industries where it can achieve the best allocation. Blind investment and structural waste are inevitable, and this situation also strengthens the competitive advantages of monopolistic groups. Even if the market becomes more open to private capital in the future, it will still be difficult for private enterprises to obtain equal opportunities for development due to these monopolies resulting from path dependence. 3. Private and individual investments have not been mobilized on a large scale, mainly because there are too few effective investment channels and methods. A large amount of private capital is reluctant to invest in industrial sectors, as doing business in such areas is very difficult and demanding; therefore, people prefer to make quick profits by speculating in the stock and real estate markets. This is very detrimental to the **long-term overall development of the economic structure. From a **macroeconomic perspective, it is by no means easy to return to the previous situation as soon as possible. 4. The employment situation remains poor; **great attention needs to be paid to small and medium-sized private enterprises, which account for over 70% of jobs – they are currently facing great difficulties and struggling to survive. The numerous existing policies have intensified the fact that the best option for college graduates in terms of employment is to become civil servants, which has led to extremely fierce competition in these exams; this has been the case in all civil service recruitment drives over the past few years. This is even more true for the recruitment processes in large state-owned enterprises. 5. The trends in investment and employment will exacerbate the disparity between industries, which in turn will lead to unequal wealth distribution among the general population. This will further intensify existing social stratification and is also detrimental to social stability ； 6. At present, the innovation system and entrepreneurial environment in ** are not yet optimal; enhancing competitiveness and fostering creativity require a favorable institutional and policy framework. Currently, far more funds for research and technological innovation are allocated to the state-owned sector than to the private sector, yet the efficiency of these investments does not match the amount invested. To some extent, if the trend of \"state expansion at the expense of the private sector\" becomes excessive and leads to an increasing imbalance, it will affect the long-term improvement of **innovation capacity**. The slowing increase in the number of new startups is also related to the difficult entrepreneurial environment; unless these issues are effectively resolved or alleviated, fewer and fewer people will be willing to start a business. III. Recommendations for Response There is no doubt that if the trend of state dominance at the expense of the private sector continues to strengthen, monopolies in various forms will inevitably emerge on a widespread scale, which would run counter to the path of a market economy with Chinese characteristics that has been advocated over the years. Looking at real-world monopolies, their forms can be understood as three types: the first is natural monopoly, the second is relational monopoly, and the third is policy-driven monopoly. As for relational monopolies, their essence is actually anti-**work; we won’t go into details here. As for monopolies over natural resources, such as those held by the three major oil companies, they are crucial to survival; it’s now very difficult to fully privatize them, so this is the only option available. What we need to oppose is only policy-driven monopolies. Therefore, as the \"night watchmen,\" our role is to prevent such monopolies and to act in accordance with the laws of a market economy, rather than adopting an approach that involves taking control of enterprises. I) From the ** perspective, 1. ** needs to address the issues of system construction and implementation. For example, as an arbitrator, the task is to ensure fairness and efficiency in society, by focusing on the formulation of public policies and the establishment of relevant systems, rather than dealing with minor issues that are clearly unfair or specific problems related to low efficiency. Too specific policies **cannot be implemented, and even if they are, the efficiency will not be high. For example, considering the problems that have emerged from the implementation of the new labor law, Chinese enterprises come in various types, exhibit significant differences in management levels, and there are large disparities between different regions and industries. The new labor law contains very specific provisions regarding many details, and it is extremely difficult, if not impossible, to implement them effectively. Then some people said that since the legal provisions are not specific and not practical to implement, doesn’t that mean they are essentially meaningless? In fact, the more specific you are and the more details you provide, the less feasible this rule becomes, and it cannot be put into practice. Why? Our current social system, cultural foundations, economic level, and corporate strength make it difficult – or rather, it is still difficult at present – to ensure that such detailed laws and regulations are fully implemented. Just as when a company formulates systems, it’s not the more perfect plan that is best; an overly perfect plan cannot be put into practice. A plan that can be implemented must fit the actual circumstances of the company. The principle is the same. In fact, it would be difficult no matter who is tasked with drafting this law. So what should we do? There is only one idea: some things should not be subject to excessive regulation; it is sufficient to adhere to the principles of establishing sound macro-level systems. 2. Serve as a safeguard for the development of small and medium-sized enterprises. The development opportunities for startups and small and medium-sized enterprises need to be further expanded; **appropriate measures should be taken in terms of tax reduction, burden alleviation, employment, and policy support. At the very least, every effort should be made to minimize unnecessary administrative constraints and burdens, freeing them so as to unleash their creativity and potential to create jobs. 3. Truly address the issue of difficulty in obtaining loans for small and medium-sized enterprises. **Relevant institutions and departments need to find ways to increase the financing opportunities and channels for small and medium-sized enterprises, such as listing on the GEM board. Banks like Minsheng Bank, which offer more financial products and services to such enterprises, **should be encouraged and supported for their efforts. II) From a corporate perspective, whether it is about dealing with financial crises, the trend of \"the state taking over while private sectors retreat,\" or the previous trend of \"private sectors gaining momentum while the state steps back,\" I feel that the approaches to dealing with these situations are the same. Enterprises should return to the essence of business – focusing on commerce itself. This means strengthening the fundamental foundations of the enterprise, enhancing its core competitiveness, continuously improving management skills, and boosting operational efficiency. We can’t control the major trends, so we should do what’s within our power to improve our own company. Many companies focus on continuously managing change, making it their top priority to improve their ability to serve customers and stay attuned to market trends. By strengthening themselves and enhancing their overall competitiveness, they manage to establish a foothold in the market, rather than following policy shifts, thereby avoiding the risks associated with constantly adjusting their business strategies in response to policies. As a representative of private enterprises, Huawei focuses on its own strategy and works to improve its management capabilities. As a result, no matter how telecommunications policies change – whether they favor state involvement at the expense of private enterprises or vice versa – it does not suffer any significant impacts. Having invested billions in 3G research and development, it continues to thrive and develop successfully to this day; it serves as a model for all Chinese enterprises to follow.