Public sector less than 40% of economy

Issue 

After more than one-and-a-half decades of constant erosion under Beijing's pro-capitalist policies, China's public sector has shrunk to less than 40% of the country's economy, and an even smaller share of industry and services.

According to a study by Li Chengshui, chief of the State Statistics Bureau (SSB) in 1981-84, that was made public on October 12, last year the public sector employed only 32% of China's industrial and service workers, and accounted for 37% of the country's GDP. This represents a huge change from just over a decade ago. In 1995 the public sector accounted for 78% of GDP.

Li presented his findings in a report first completed in May 2006. The report was uploaded to the hbgongren.com website in October this year.

Li based his study on the official SSB figures. He also drew data from a report released in March 2006 by the All China Federation of Industry and Commerce (ACFIC) that surveyed the state of China's minying ("people's-run") enterprises during the 10th five-year plan (2001-05).

Minying enterprises consist mainly of privately-owned firms. But the ACFIC defined them as all enterprises except those wholly or partly owned by the state, thus including in its net the cooperatively-owned enterprises. Yet in SSB statistics, the "public sector" covers both state and cooperatively ("collectively")-owned enterprises.

In his analysis, Li took the duplication into account, and adjusted the two streams of figures to make them compatible for comparison.

According to Li, between 1995 and 2005 the number of private enterprises rose from 660,000 to 4.3 million, the number of workers they employed increased from 8.2 million to 47.1 million. Their capital base rose during this period 26-fold, from 226.2 billion yuan (US$30 billion) to 6133.1 billion yuan ($829.5 billion).

In a speech delivered at the Beijing University on May 19, Li pointed out that the "private sector economy signifies the formation of a new capitalist class".

Quoting ACFIC figures, Li calculated that 33.9% of the membership of the ruling Communist Party were capitalist employers in 2005, noting that their weight in CP membership far exceeds that of the workers, peasants and intellectuals.

The pace at which the public sector has contracted relative to the private sector in China has accelerated in the last few years even though the absolute level of state-owned capital has increased, Li pointed out.

Measured by paid-up capital, the relative weight between the public and private sector was 65.7:34.3 in 2001, deteriorating to 56:44 in 2004. The public sector weight in the economy by this measure declined by an annual rate of 3.23 percentage points over this period.

The deterioration seems to have intensified since then, though this is not obvious from the official statistics due to the SSB's decision to stop reporting figures for the paid-up capital of enterprises, releasing data on their fixed assets instead.

In 2005, the fixed assets of the public sector rose 23.6% over the previous 12 months, while those of the private sector jumped by 40.6%. This contrasting growth pattern was repeated in 2006 when the public sector's fixed assets grew 21.6% over the previous 12 months, while the private sector registered a 35.3% growth in its fixed assets.

Li pointed out that the growth in private sector fixed assets was therefore 1.72 times that of the public sector in 2005 and 1.63 times in 2006.

His figures on the relative GDP weight between the public and private sectors were derived from the ACFIC survey. This divided private capital into two categories — domestic minying as opposed to the aggregate of all foreign capital that includes capital from Hong Kong, Macau, Taiwan as well as from the rest of the world.

In 2000, private capital accounted for 55% of China's GDP (of which 42.4% was attributed to domestic minying enterprises and 12.6% to foreign capital). IN 2005, private capital accounted for 65% of GDP (of which 49.7% was attributed to domestic minying enterprises and 15-16% to foreign owned enterprises).

Over this five-year period, private capital grew by 10 percentage points, or at two percentage points per annum.

From the 2005 private sector figures, Li took out the share of collective enterprises (estimated at eight percentage points of the GDP) and added in the share of private capital in the partially privatised state enterprises (estimated at four percentage points of GDP). This produced an adjusted private sector weight of 61% of GDP in 2005.

Based on the 2000-05 average growth pattern, Li projected that the private sector accounted for 63% of GDP in 2006.

The declining weight of state enterprises in China's economy is especially pronounced in industry. Quoting 2006 official figures, Li noted that the state share of industrial production declined from 25.5% in 1997 to 15.3% in 2004.

He observed that not only is the private sector — the capitalist class — continuing to increase its overall weight in the economy, it is also making inroads into strategic industries such as electricity, rail, posts and telecommunications, aviation as well as defence industries.

Despite this trend, the Beijing regime is still asserting that the "socialist economy" is being strengthened in China. Li responded to such claims: "They based their argument on the growth in absolute terms of the state sector, but completely ignored and disguised the question of its declining relative weight. They quoted examples illustrating the superior position or even control of state enterprises in crucial areas and industries but failed to assess whether or not the state sector is still leading in the overall economy."

Agriculture accounted to 15.2% of China's GDP in 2004, declining from 15.8% in 2001, and its share of the country's employment declined from 50% to 46.9% over the same period.

According to Li's 2006 study, there remained 1928 state farms in China in 2004, down from 1961 in 2001. In 2004, they were employing 3.39 million people (or 0.96% of the agricultural sector's work force).

State farms' weight in agricultural production is far higher than its employment representation — 5.38% in 2004, up from 4.45% in 2001.

In addition, there still exist "several thousands" of villages that have rejected Beijing's policy of de-collectivisation of farming, which started in the late 1970s. Li said there have also been various initiatives to revive collective farming in recent years, but neither existing or new collective farms are recorded by official statistics.

Li quoted from a nationwide sample-based survey as indicating that by the time Communist Party chief Jiang Zemin openly advocated in 2001 that capitalists be admitted to party membership, 29.9% of the CP members were already capitalists. Li estimated that 13% of the CP's membership were capitalists as early as 1993, increasing to 17.1% in 1995 and 19.9% in 2000.

Elaborating the survey's findings, Li calculated that 78.6% of the CP's capitalist members became capitalists after they'd joined the party.