How Private Enterprises in China Developed
The main challenges that faced the development of the private sector in China included the nature of the sector; whether it was socialist or capitalist, and whether the private sector should have voting rights in the Communist regime. Other challenges included the protection of private property and the issue of market entry for private enterprises. However, the reform policy adopted by China, coupled with the increasing adoption of the open-door policy has helped in the continued improvement of the private sector.
Essentially, the open door policy refers to the allowance of equitable trade opportunities to all enterprises and countries in the economic environment (Tersptra, Tersptra, Xueli and Egri 12). In China, the development of the open-door policy has greatly helped in the development of the private sector, with the granting of measures that support the private sector. The Chinese economy did not previously support the use of the open-door policy, since it meant that employees had access to the management in enterprises, and therefore, had an option to change or improve management techniques.
The development of the private enterprise in China has been marked by different policies by the Chinese government. The first factor that the government focused on in the private sector was the introduction of flexible interest rates, a factor that expanded the lending rate band for small and medium-sized enterprises. The second factor is the improvement of accounting and audit practices, which were previously targeted as the detriment in the development of the private sector. The government has also embarked on a mission to improve the capital markets, which will help in the quality of regulation of the sector, including improved factors like disclosure.
The improvement of the private sector in China has also focused on the conversion of government enterprises to private-held enterprises, a factor that has also helped in the improvement of the private sector (Centennial Group Holdings 23). The commonest forms of business ownership in the Chinese economy revolve around sole proprietorships, partnerships, and limited liability companies. These three main forms of business ownerships are predominant because of the autonomy that they accord to the owners of the business. The conversion of state-owned corporations to private enterprises is usually faced with suspicion and skepticism because of the apparent lack of necessary management ability, however, the Chinese economy has focused on these forms of ownership (Centennial Group Holdings 25). This is mainly because the ownership structures enable managers to make independent decisions concerning personnel and the allocation of resources in firms. The use of these ownership structures also help in the improvement of labor mobility in the context of private-owned enterprises. As already stated, the development of the private sector in China has been marked by a number of factors that have seen the continued improvement in the sector. The change from government to private-owned enterprises has been rising in the past 30 years, and it is forecasted that the change is a continuous factor.
Centennial Group Holdings. The Development of Private Enterprise in the People’s Republic of China, 2002. Asian Development Bank.
Tong-Terpstra, Jane, and Robert Terpstra, and Wang, Xueli, and Carolyne Egri. Today’s State-Owned Enterprises of China: Are They Dying Dinosaurs or Dynamic Dynamos?, 2007. Beijing.
Zheng, Hongliang, and Yang Yang. Chinese Private Sector Development in the Past 30 Years: Retrospect and Prospect. Nottingham, The University of Nottingham.