China boosts state firms as entrepreneurs struggle

July 9, 2012 • Business

In this photo taken on June 29, 2012, a worker assembles a massage bed at a local furniture manufacturing factory in Zhanjiang, China. Zhanjiang, in Guangdong province, the heart of China’s export-driven manufacturing industries, reflects the conflict between the Communist Party’s need for a robust private sector and its determination to build up state-owned companies. The backbone of the local economy is private factories that employ thousands of people making furniture and traditional Chinese medicines or processing seafood. (AP Photo/Andy Wong)

ZHANJIANG, China (AP) — 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.

“When the economy gets into trouble, all those good intentions get thrown out the window, and we Login to read more

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