Private Sector Accounts For Two Thirds Of China's Economy

The private sector in China accounts for over two thirds of the country's economy according to a Sept. 13 report titled "China's Capitalists" by CLSA, the Asian investment banking arm of French bank Credit Agricole. These seismic changes have formed a strong middle class with a stake in a liberalized economic environment, making a rollback of reforms nearly impossible, "More than 70% of the mainland's GDP and almost all of its new job creation now comes from privately owned small- and medium-sized firms. This is capitalism with Chinese characteristics," the report said.

The wider social significance of this will soon become apparent as according to CLSA China is about to experience slow economic growth. Unlike a previous slowdown in 1989 and 1990, China will not be thrown into political and economic chaos this time around, it argued. "The 50 million to 60 million urban households that make up China's middle class -- many of them homeowners -- have the same kinds of social and economic aspirations as their counterparts in other societies," it said. "This middle class, which did not exist in 1990, overlaps with the 75% of the workforce employed by private companies and both populations have a strong interest in social stability and continued market reforms."

Crucial in CLSA's calculation of the size of China's private economy is the classification of a large group of enterprises often considered to belong in a gray area between the private- and the government-run sector. These companies are typically referred to as "wearing a red hat" because of politically correct designations such as collectively owned, cooperative or joint-ownership when in fact they are privately owned and run. "If we acknowledge that today almost all companies registered as collectives and joint-stock companies and other 'red hat' entities are in fact privately owned and operated ... then China's private sector balloons to a 66% share of GDP," the report said.

This reinterpretation of categories was dismissed by Chinese officials contacted Sept. 13 "Collective enterprises belong to the group of public-owned enterprises and are different from private-owned enterprises," said an official with the National Industrial and Commercial Administration. "Rather than being private, collective enterprises are a type of state-owned enterprise," he told AFP.