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)