BEIJING ACCUSED OF ATTACKING PRIVATE ENTERPRISE

By Jamil Anderlini, Geoff Dyer in Beijing 2009-11-26

eijing is facing a growing backlash from prominent figures in business and academia over claims that there has been creeping renationalisation in parts of the economy during the last year.

China's economy has recovered sharply in recent months as a result of an unprecedented expansion of government-directed bank lending, which has largely been channelled to state-owned enterprises.

However, critics say that the stimulus measures have also been accompanied by the state reasserting control over some sections of the economy, which could hurt the country's long-term growth prospects.

“Before the global economic crisis we still felt like we were moving continuously towards a more market-oriented and liberalised economy, but the government's stimulus programme has pushed that trend backwards,” Zhang Xin, chief executive of Soho China, one of the country's 10 largest property developers, told the Financial Times in an interview.


“We are seeing this in real estate but it is much worse in other industries where private players are being crushed.”

The dominance of state-owned enterprises is being reasserted in a range of industries, including airlines, steel and coal-mining at the expense of private ownership – a phenomenon that has been called guojin mintui, translated as “the state advances as the private sector recedes”.

Most of the country's privately owned airlines that were set up in recent years have been absorbed by loss-making state competitors in virtual hostile takeovers, while Rizhao Steel, a prominent private steel company, agreed to sell a majority stake to a state-owned rival under strong political pressure.

While Beijing has not advocated renationalisation as a goal, officials and businesspeople say the government's policies have had that effect, particularly since the onset of the global crisis last year.

“The state monopoly on market entry for many sectors is caused by the insufficient reform of our political system,” according to Liu Jipeng, professor at China University of Political Science and Law who helped draft China's state assets law.

Mr Liu said an important factor in the change of heart in Beijing on privatisation was the fear that China could see the rise of its own version of the Russian oligarch Mikhail Khodorkovsky, who was jailed in 2005 in what many observers saw as Kremlin retaliation for his growing involvement in politics.

The Chinese government has already taken some steps to try to defuse fears of a wave of nationalisations and has set up a group under Zhang Dejiang, vice-premier, to find ways to support small and medium-sized companies.

State media have reported the issue has been included among six main topics expected to be discussed in coming weeks by China's Communist leaders during their annual closed-door Economic Work Meeting, which sets the economic agenda for the forthcoming year.

In another sign of the complicated relationship between the Chinese state and private industry, the Communist party school in eastern Jiangsu province said earlier this year that it was launching a course specifically aimed at the children of successful private entrepreneurs.

The planned curriculum mixed financial and economic courses with instruction on party history and other political education. The course was to have started last month, but officials at the school said that it had been delayed.