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Nov[Caixin.com] (Reported by Zhou Dongxu) On November 1, General Secretary Xi Jinping hosted a private sector forum in Beijing and delivered a significant speech. His speech responded to all kinds of disputes in recent development of private enterprises one by one.
All circles are more concerned about a series of complicated survival problems facing private enterprises. Did the speech point out a new direction? Will the development environment of private sector undergo substantial improvement after the speech? To this end, Caixin reporter had a dialogue with Professor Nie Huihua, Vice President of the National Academy of Development and Strategy, RUC, who has always been focusing on development of private sector.
Gift pack of reform for the expected development of private enterprises
Caixin Reporter: The discussion on private sector has been going on for a long time, and many central leaders have made statements one after another. What does the private sector forum attended by General Secretary Xi Jinping mean? In other words, does it indicate that some substantive actions will be taken?
Nie Huihua: I believe that there will be actions taken. This year marks the 40th anniversary of the reform and opening up. A commemoration meeting will be held in December and the Fourth Plenary Session of the Central Committee will be held soon, when a reform package shall be established. The Third Plenary Session of the 18th CPC Central Committee tended to adopt the programmatic reform planning, with few contents related to the private sector. As an upgraded version of the Third Plenary Session, there shall be a gift pack of reform for the development of private sector.
At present, given the mounting downward economic pressure, it is extremely difficult for the private sector to survive and grow, arousing a general feeling of insecurity. It is necessary to share dividends of reform with the private enterprises. For example, the control over mixed ownership reform may be loosened, involving more state-owned enterprises, and there may be deregulation on control or ownership ratio. Many areas that are not open to private sector currently may be further opened. The direction of tax reduction may be further clarified. Now everyone is discussing that there are no substantial benefits brought about by tax reduction and the difference between reduction and non-reduction is not obvious. Therefore, the tax reduction measures shall be strengthened.
The most fundamental point is that the gift pack of reform shall work with the policy. After the concrete substantial reform measures are introduced, there shall be more deregulation.
Many policies in the past were not made only for private enterprises, so it was easy to pass the buck. It would be easier to implement specific measures introduced for private enterprises. I am still optimistic about further implementation of reform measures for private sector at the end of the year.
Caixin Reporter: In his speech, Xi Jinping directly mentioned such remarks as “exit of private economy” and stated that “these remarks are completely wrong”. Recently, these statements or remarks are gathering force. What do you think of these remarks? What is the root cause?
Nie Huihua: These remarks are definitely “ultra-left” remarks or trend of thought. In the short term, the “ultra-left” trend of thought will not gain ground. In fact, these remarks have never disappeared, just like ghosts, but this time there are new backgrounds. First of all, there is mounting downward economic pressure. The more obvious the downward economic pressure is, the less secure the private sector will be. When the economy is good, the development is smooth, and slanderous gossip can be ignored. Once there is downward economic pressure, it usually gives rise to a state of extreme nervousness, which is quite normal. The economic downturn, accompanied by the prevailing “ultra-left” remarks, has made the negative effect extremely influential.
Secondly, the introduction of some policies makes people believe that these remarks are related to the policies. Panic is the result of mutual confirmation. Once people have a sense of panic, they tend to believe that many things can be confirmed by each other. Cutting overcapacity and de-leveraging have hurt the private sector to some extent. As these measures mainly aim at private enterprises, especially the small and medium-sized private enterprises, people will naturally associate cutting overcapacity and de-leveraging with the private sector. The policy mix lacks interworking, so positive policy hedging is required, or the panic will not be eliminated. I don't think there is any conspiracy, but the combined action of policy nodes has resulted in rising panic.
Competition neutrality shall be included in the top-level design of “two irresolutions”
Caixin Reporter: In the forum, it is also mentioned that the public and private sectors are not mutually exclusive or offset each other. However, some studies indicate that the state-owned enterprises may have actually taken the market shares of private enterprises and the high profit of state-owned enterprises are in sharp contrast to the survival of private enterprises recently. How to improve the fair competition between state-owned enterprises and private enterprises?
Nie Huihua: Objectively, cutting overcapacity and de-leveraging are beneficial to state-owned enterprises. Certainly, we cannot say that these measures aim at private enterprises. However, they have actually brought more opportunities to state-owned enterprises and increased costs of small and medium-sized private enterprises
I'm afraid that we cannot change the basic competition pattern between state-owned enterprises and private enterprises shaped over the years in the short term. The layout and industrial chain of state-owned enterprises and private enterprises have been developed for a long time. Due to historical reasons, it takes time for changes. In short, state-owned enterprises occupy or monopolize the upper reaches, while private enterprises are in the middle and lower reaches. Cutting overcapacity in the upper reaches by the state-owned enterprises will naturally increase costs of the lower reaches. The private enterprises are in a competitive market and it is basically impossible for them to transfer costs. The above asymmetric competition layout or pattern will not change much in the short term.
However, the competitive environment between state-owned enterprises and private enterprises could be improved. For example, more private enterprises could be allowed to enter the upstream industry, or the upstream state-owned enterprises may allow private enterprises to hold more shares or even become the controlling shareholder. It has never been said that mixed ownership does not allow private enterprises to hold shares, but it is really difficult to do so in reality. So, it is a breakthrough point.
In addition, I value the principle of competition neutrality proposed by Governor Yi Gang. Whether the international concept of competition neutrality can be implemented or not, the state-owned enterprises and private enterprises abide by the same rules in many ways, and it is likely that the unequal competition between the state-owned enterprises and private enterprises will gradually turn into equal competition.
Competition neutrality is based on the rules of the game, and ““two irresolutions” are also very important, but they are results or purposes, without means and clear rules. For example, the state cannot take more or less from the return on investment, and the state-owned enterprises and private enterprises shall be subject to the same taxation and supervision. Competition neutrality is more specific and operational, and it is an international rule with the practical experiences of developed countries. I believe that it will be an appropriate breakthrough point to promote fair competition between state-owned enterprises and private enterprises.
I believe that competition neutrality shall be included in the top-level design of “two irresolutions”
Caixin Reporter: In his speech at the forum, General Secretary Xi Jinping stated that some government departments and large enterprises shall correct their behavior not to take advantage of their dominant position to bully and default in the payment to private enterprises. The articles of Xinhua News Agency also mentioned that many private entrepreneurs attended the forum “complained” about similar things to Xi Jinping. What are the root causes of the problem?
Nie Huihua: “Industrial and commerce relations” has always existed. “Industry and commerce relations” here refers to the relations between manufacturing industry and distribution industry. The manufacturing industry consists of factories, while distribution industry stands for commerce. For example, some large distribution enterprises may often default in payments to or tie up money of the factories. The competition in manufacturing industry is relatively adequate, while the distribution industry is comparatively monopolized. The pattern of unprofitable manufacturing industry has always existed, which is just one case in point. The reason behind bullying small enterprises by large enterprises is that their competition patterns are different. The downstream has mastered market channels and channel is king.
The same is true for the relationship between state-owned enterprises and private enterprises, especially when many private enterprises are affiliated to one state-owned enterprise. A recent study by Professor Song Zheng et al. from CUHK indicates that the economic development of China is driven by an economic group formed by a group of private enterprises affiliated to state-owned enterprises. In fact, many of China's economic nodes are made up of large state-owned enterprises, to which many private enterprises are affiliated. If private enterprises are not affiliated to state-owned enterprises, what can they do? Therefore, changes can only be realized by ensuring equal competition opportunities and equal financing costs. If we cannot guarantee the above, how can we change the result of being bullied?
There are many policies but they must be consistent and not ambiguous
Caixin Reporter: “In recent years, we have issued many policies and measures to support the development of private sector, but many of them are not well implemented and have not achieved good results. Xi Jinping's statement was also seen by many as a reflection on recent policies. How do you interpret it? Policy implementation is not good, what is the reason?
Nie Huihua: The inappropriate implementation of policies is definitely related to the executive organs. However, I don't think that full responsibility shall be taken by local authorities. In fact, the execution now has improved a lot compared to that in the past.
There are two alarming reasons. First, there may be internal conflicts and even “fights” in policy documents, which may lead to the impossible implementation in practice. For example, on one hand, it is required not to set various thresholds for private enterprises so as to ensure fair competition; on the other hand, state-owned enterprises are seeking to become bigger and stronger in practice. If a project is given to a private enterprise but not to a state-owned enterprise, will it be considered as not supporting the state-owned enterprise to become bigger and stronger, and who will assume the responsibility? In addition, there is “conflict” between de-leveraging and strengthening financial support for private enterprises at the same time. It boils down to the fact that the policies have unclear boundaries and non-prominent and even contradictory focuses, leading to difficult implementation. When execution organs don't know what to do, they are likely to take conservative measures, considering “left” as safe and “right” as dangerous. Second, many policies lack practical and specific schemes. Mixed ownership is one of the highlights and main directions of the reform of state-owned enterprises. However, its slow advance is related to the lack of specific operation guidelines, which can easily make the enforcers over-cautious.
Therefore, it is not that there are too few policies, but that policies shall be consistent and not ambiguous, and then comes the operability. In addition to the issue of implementation, attention must be paid to the consistency and coordination of policies.
Caixin Reporter: In the forum, General Secretary Xi Jinping also stated that “some policies were not fully investigated in the early stage and policy makers did not fully listen to the opinions of enterprises.” In fact, the CPC Central Committee and the State Council have successively issued Opinions of the CPC Central Committee and the State Council on Improving the Property Rights Protection System and Lawfully Protecting Property Rights and Opinions on Creating a Sound Entrepreneur Growth Environment, Advocating Excellent Entrepreneurship and Better Using the Entrepreneurs' Role, stating that the policies shall absorb entrepreneurs’ opinions. Isn't it an issue of implementation?
Nie Huihua: The root cause still lies in the fundamental system without entrepreneurs’ participation in policy making. Without the system, people dare not or refuse to do so. Many policy documents are suggestions or opinions, which are not as operational and feasible as laws or systems. The crucial reason is that there are too many documents and too few systems.
Caixin Reporter: In addition to scientificity and implementation of the policies, is there any other underlying problem that restricts the survival and development of private enterprises? In other words, if the policy is scientific and implemented properly, will the existing situation be eliminated?
Nie Huihua: The underlying problems are concept and system. At present, the biggest concern of private entrepreneurs is the uncertainty of policies, which always change. In order to maintain the stability of the policies, the basic principles shall be firmly established and shall not be changed.
Private entrepreneurs are most concerned about two types of rights, namely human rights and property rights. The human rights are rights inherent to all human beings free from arrest and execution at random, while property rights are rights of enterprises free from punishment or even closure without reasonable causes. These two points consist of the cornerstone. The problem now is that some measures have actually shaken the cornerstone.
I also found a rule that when the “ultra-left” trend of thought prevails, the private enterprises suffer setbacks. Every time the private enterprises enjoy fast growth, the “ultra-left” trend of thought is suppressed. Therefore, if we really want to reassure the private enterprises and entrepreneurs, it is more desirable to suppress the “ultra-left” trend of thought rather than issuing documents. My point of view may be extreme. Ten speeches are not as effective as one cracking-down. If we dare to crack down the “ultra-left” trend of thought, then private enterprises will be much more relieved.
Caixin Reporter: Xi Jinping also stated in his speech that for private enterprises with the risk of liquidation of equity pledge, relevant parties and local authorities shall study and take special measures to help enterprises to pull through and avoid the transfer of ownership of enterprises. Does this mean that the risk of equity pledge is basically eliminated?
Nie Huihua: They can be considered as special measures taken in a special period. The capital market is inherently risky. It is impossible that the enterprise can add leverage arbitrarily without taking any risk. Will it bring about new moral hazard? These measures can be taken in emergency but not on a regular basis. I estimate that they can only benefit some leading enterprises or high-quality private enterprises, but I am afraid it cannot benefit the majority of small and medium-sized enterprises.
(Original Text: http://opinion.caixin.com/2018-11-02/101342030.html)
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