In January 2005, China Business Times published the top ten news stories that shaped and influenced the rapid rise of China's private economy sector in 2004. These are the stories that made the grade in chronological order:
1. Hebei document gives rise to debate on private economy
On January 2, the provincial government of north China's Hebei Province approved and released a document on creating a sound institutional environment for the development of the private sector. The document resulted in a hot debate on the so-called "original sin" of private enterprises.
The "original sin" refers to crimes and irregularities committed by some private business owners in China during "the gold rush" of the 1980s.
The document suggests that the authorities should not prosecute bosses of private firms if the crimes committed in the initial stages of business outlive the validity period as stipulated under the country's criminal law. Further, even if the authorities decided to proceed with prosecution, the document recommends lenient or suspended sentences taking into consideration factors such as the nature and degree of severity of the crimes and their consequences.
The main argument against the document was that it provided convenient loopholes, particularly to the rich. In addition, its suggestions conflict with Chinese criminal law. The stipulation on mitigation and annulment goes against the principle of punishment befitting the crime. Further, local authorities should not and cannot make sentencing decisions without regard to the prevailing laws of the country.
Nevertheless, China's private enterprises developed with the support of the central government, albeit at times clashing with the country's planned economic system, laws and concepts. But, private enterprises guilty of illegal practices are in the minority and do not represent the sector as a whole.
The Hebei document could be said to facilitate an objective and historical look at the problems that exist in private firms.
2. Constitutional amendment aims to protect private property
On March 14, the Second Session of the 10th National People's Congress passed amendments to the Constitution, the fourth time since the existing Constitution was established in 1982.
One of the amendments adopted was that relating to private property. Article 22 now stipulates that legally obtained private property cannot be encroached upon. The clause effectively transforms what was previously only a civil right into a Constitutional right.
This amendment was first introduced by the All-China Federation of Industry and Commerce in 1998 during the first session of the Ninth CPPCC. The federation made the same proposal again in 2002 and 2003.
Article 22 is expected to boost the private economy sector.
3. Jiangsu Tieben steel giant arouses debate
On April 28, an order was passed halting the construction of Jiangsu Tieben Iron and Steel Co., a privately-owned steel project in Changzhou on the Yangtze River Delta. The order was announced during a State Council meeting hosted by Premier Wen Jiabao.
The 10.6 billion yuan project was expected to have a production capacity of 8.4 million tons. The local government approved the project without the central government's prior approval. Approval for the use of the land was also illegally obtained.
The company provided falsified accounts so as to obtain bank loans. Tieben had an annual production capacity of 2 million tons. In 2003, it produced 800,000 tons of steel.
Tieben was one of the first private enterprises to be shut down under China's macro-control policy.
Although this matter is not expected to influence the long-term development of the country's iron and steel industry as a whole, it could very well change modes of development.
4. Jiangsu Qionghua scandal hurts SME board
On June 12, Jiangsu Qionghua Hi-tech Co, Ltd. delivered a heavy blow to China's stockholders.
Before listing on the SME (Small and Medium Enterprise) board of Shenzhen Stock Exchange, Qionghua falsely declared its treasury bond investment at the total value of 35.55 million yuan. Following investigations by the China Securities Regulatory Commission, Qionghua's stock prices dropped sharply, raising investors' doubts about the SME board.
Jiangsu Qionghua Hi-tech Co, Ltd. was the second firm listed on SME (small and medium enterprises) board of Shenzhen Stock Exchange. Qionghua enjoyed a 19 percent profit rise in the year 2002 and 2003.
On November 3, Qionghua's president, Ao Yinmei, and vice general manager, Shi Jianxin, resigned, putting an end to the scandal.
Although the SME board, touted as China's NASDAQ, has some 38 firms listed, this episode has done little for its image and it will be a while yet before it reaches its goal of China's answer to NASDAQ.
5. Qingdao conference
On July 25, the State Council held a forum on promoting non-public sector economic development in Qingdao in east China's Shandong Province. Participants included Zeng Peiyan, vice premier of the Political Bureau of the CPC Central Committee, 13 representatives from non-public enterprises, leaders from the relevant central, provincial and municipal government departments.
The conference paid close attention to Premier Wen Jiabao's written statement that the private or non-public sector was a very important component of China's socialist market economy and the government, while strengthening and developing the public sector, also had a duty to encourage, support and guide the private sector. On the same day, the State Council issued its decision on investment system reforms.
The Qingdao conference revealed four pieces of vital information: first, the State Council fully affirmed the role played by the private sector; second, the government insists on strengthening and developing the public sector while also encouraging, supporting and guiding the private sector; third, the government is drafting documents on developing the private business sector, and related regulations on investment, land use and industry permissions; and fourth, macro-adjustment and control is aimed at over-heated industries and not the private sector.
6. Dispute between Larry Lang and Gu Chujun highlights weaknesses in SOE ownership structure reforms
On August 10, Larry Lang, a well-known professor with the Chinese University of Hong Kong, delivered a speech accusing Gu Chujun, president of Kelon Group, a private Hong Kong-listed firm, of buying state assets at less than market prices by depressing their value. Lang criticized this method of disposing of state-owned assets.
Lang also suggested that China should stop its pro-privatization ownership structure reforms and MBOs (management buyouts). A week later, Gu Chujun sued Lang for libel. Their spat is popularly known as "The Larry and Gu Dispute".
Their dispute set off a nation-wide debate about MBOs. Scholars on the Chinese mainland believe that there are complicated reasons behind the loss of state assets in the SOE reforms. Private enterprises are not to be singled out as the only cause of losses.
The dispute raised serious concerns and resulted in the government's issuing regulations on MBOs.
7. D'Long 's bitter lesson
On August 31, D'Long Group's three "close relatives" - Hunan Torch Automobile Group Co. Ltd., Shenyang Hejin Holding Investment Co. Ltd., and Tianshan Cement Holding Co. Ltd. - announced simultaneously that their holding companies and related Xinjiang D'Long (Group) Co. Ltd, D'Long International Strategic Investment Co. Ltd., and Xinjiang Tunhe Group Co. Ltd. were to assign rights to all their assets to China Huarong Asset Management Corp. Huarong would have full authority to perform its official functions relating to the management and handling rights of the three companies. Huarong said that the mechanics of the arrangement would be in accordance with the relevant laws and regulations, and mutual agreement.
This development indicates Huarong's acceptance of D'Long, and how the government has stepped in to solve D'Long's problem, paving the way for it into the second tier market.
There is no denying D'Long's achievements, but its recent crisis is also a bitter lesson. According to analysts, the People's Bank of China assignment of D'Long's asset reorganization to Huarong will likely set a precedent for other privately run enterprises in relation to financial risk management. This is an example of a win-win situation for enterprise and the government. Enterprises use government loans to activate assets and the debts owed by enterprises to the government can be paid back to a large degree. The reorganized D'Long is expected to become a completely new enterprise.
8. Elche event a warning to 'Made in China'
On September 16, a Chinese-owned shoe warehouse was burnt down in Elche, Spain, resulting in over 1 million Euros worth of damage. Two demonstrations against Chinese-owned shoe businesses were held in Elche on September 23 and 30.
On September 21, the Chinese ambassador to Spain, Qiu Xiaoqi, met with four Chinese businessmen from Elche including Chen Jiusong, the owner of the burned warehouse. Qiu said that the Elche incident was the first serious case to threaten the livelihood of Chinese business people in Spain. The arson attack was strongly condemned by China. The Chinese embassy in Spain has urged the Spanish government to take tough measures to protect the legal rights of Chinese business people.
In the past two years, the number of Chinese shoes shops in Elche has grown to over 60 due to Spain's booming shoe industry. The incident acts as a warning to China's developing foreign trade sector that "Made in China" commodities need to go beyond ultra-low pricing if they are to establish their position in the long term.
More and more Chinese privately owned enterprises are moving operations overseas, and it is critical that they establish development rights if they are to compete in the international market.
9. Lenovo acquires IBM PC business
China's largest personal computer maker, Lenovo Group, announced on December 8 that it had bought IBM's PC business for US$1.3 billion, capping the US giant's gradual withdrawal from the business it helped to pioneer in 1981.
The deal makes Lenovo the third-largest PC company in the world, up from its previous eighth position. The agreement calls for Lenovo to pay IBM US$650 million in cash and US$600 million in Lenovo Group common stock. The group will also assume US$500 million in net balance sheet liabilities from IBM. Lenovo is also buying out IBM's interest in its joint venture with Lenovo's rival, Great Wall Technology, China's No. 2 PC maker. IBM will take an 18.9 percent stake in Lenovo.
Following the deal, Lenovo Group Chairman, Liu Chuanzhi, retired from his position with incumbent CEO, Yang Yuanqing, replacing him. Stephen M. Ward, Jr., from IBM has taken over as Lenovo's new CEO.
For Lenovo, which is battling intense competition in its home market, the deal with IBM is a breakthrough in its efforts to build up its business abroad. It also makes the company part of a small but growing group of Chinese privately run companies buying overseas brands.
10. 100 entrepreneurs named 'Model Workers'
A national meeting honoring "Excellent Workers for Building Socialism with Chinese Characteristics" was held in Beijing on December 24. The meeting was jointly sponsored by the United Front Work Department of CCCPC, the National Development and Reform Commission, the Ministry of Personnel, the State Administration of Industry and Commerce, and the All-China Federation of Industry and Commerce.
During the meeting, 100 entrepreneurs from the private sector were awarded the title of "Excellent Workers for Building Socialism with Chinese Characteristics." This was the first time that the Chinese government recognized entrepreneurs from the private sector for their contributions to China's economic reform and socialist modernization building process.
Jia Qinglin, member of the Standing Committee of the Political Bureau of the 16th CPC Central Committee and chairman of the National Committee of the Chinese People's Political Consultative Conference, expressed appreciation for the non-public sector as a strong force for economic growth, relieving unemployment, and reviving China's urban and rural markets.
Since 1978, when China implemented the policy of economic reform, opening its markets to the outside world, the number of private entrepreneurs has been increasing steadily. Jia said that they have played and would continue to play an important role in building socialism with Chinese characteristics.
(China Business Times, translated by Guo Xiaohong and Li Jingrong for China.org.cn, February 9, 2005)
