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SOVEREIGN MAN

The biggest obstacle for the Chinese private sector

Chinese Business Woman

Many people admire China for all of the capitalist friendly economic reforms they’ve made over the past 30 years, however in many ways, they’re still not doing enough to foster entrepreneurship. Communist China still focuses much of their resources on state-owned entities instead of allowing a competitive private sector. The Associated Press reports on the adversity many Chinese entrepreneurs are currently facing:

Reformers say China needs more entrepreneurs like Liu Peijian. His chain of six furniture stores employs 60 people. But Beijing’s response to the deepest economic slump since the 2008 crisis is to pump money into state industry, leaving businesspeople like Liu who create jobs to fend for themselves.

Across town from Liu’s office is a project that exemplifies China’s mini-stimulus: A 69.6 billion yuan ($11 billion steel) mill being built by a government company and financed by state-owned banks that lend little to the private sector. It will employ 5,000 people — or one job for each $2.2 million of investment.

“We get no government help,” said Liu, as his office air conditioner struggled against the muggy heat of this southern city. “But we’re a small company, and small companies shouldn’t bother the government.”

Spending like that of Baosteel Group, owner of the Zhanjiang mill, is expected to help push up economic growth later this year. But the emphasis on state industry that creates few jobs will come at a longer-term cost, setting back efforts to reduce reliance on investment and generate self-sustaining growth powered by consumer spending.

The strategy will further entrench subsidy-guzzling government companies that dominate industries from oil to telecoms. That might hamper reforms the World Bank and others say are needed to keep the economy growing by curbing state industry and nurturing free-market competition and more dynamic private companies.

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