[scdaily.cn] Nie Huihua: Improving the business environment in central and western China

According to institutional economics, institutions are the determinants of long-term economic growth in a country or region. Therefore, only by improving the business environment, the sum of various institutional institutions that promote business activities, can we achieve sustained and healthy economic development.

At present, China attaches great importance to the construction of the business environment from the top down. From 2013 to 2019, improving business environment has constantly been one of the major issues discussed at the first session of the State Council executive meeting. Meanwhile, local governments in many provinces and cities joined in the benign competition on optimizing the business environment. As several third-party surveys show that the overall performance in economically developed eastern and southern coastal areas is better than that in relatively underdeveloped central and western provinces. Does this mean that it is difficult to improve the business environment, attract enterprises to settle down in central and western China? Not necessarily so. If the central and western China could prescribe the right medicine to the case, it will turn it around.

So what are the common problems? First, outdated and backward infrastructures as the local governments are limited by insufficient financial resources; second, remote inland areas hardly attractive to foreign trade and investment; third, short of high-quality talent cause slow economic development which in turn making those areas less attractive to talents; fourth, people’s relationship is valued higher than the spirit of contract and rule of law.

How should the central and western China optimize the business environment accordingly then?

First of all, local governments must improve their infrastructure especially the transportation system. To be rich you must build roads first, this is the way to success that China learned in its economic transformation. Thus, instead of solely relying on local treasury, governments in the central and western region should tap all resources from both the government financial system and the market system to raise funds for infrastructure building, for instance, the government can issue targeted bonds to absorb social capital.

Second, an open, inclusive and prospering business environment is the basis for local economic development. For underdeveloped regions, the priority is to use all the tool necessary to activate and develop the local economy. While the coastal provinces and large cities are in full swing in “headquarters economy”, the central and western China could strive to bring in the “branches economy”. Many enterprises prefer settling down their divisions of production, processing and operations in middle and small cities in consideration of transportation and raw material costs. In this sense, the central and western provinces have comparative and competitive advantages.

Third, a “popular” place where talents are gathered must be a place with a good business environment. It is undeniable that first-tier cities with outstanding infrastructural, educational and medical facilities are more attractive to high-quality talent. However, the central and western regions should be good at taking advantage of the “spillover effect” of those talents, hiring them as part-time or visiting consultants or advisors, in this way, high-quality talents still can support or contribute to the local development. In addition, local governments should seize the opportunities provided by the central government, proposing national-level talent projects to attract talents to settle down.

Finally, a good business environment must respect the spirit of contract. In this regard, local governments must take the lead, respect the contract spirit, keep their word, and the enterprises could follow the example and abide by business ethics. More importantly, the government and business relations is one of the factors crucial to the construction of the business environment. The performance of local officials should be evaluated according to a clear assessment mechanism that ensures a positive government and business relations.

Nie Huihua, Executive Deputy Dean of National Academy of Development and Strategy, Renmin University of China.

The original article was published at here.