Keen competition spurs change among firms driving economy
China's medium-size and large enterprises are undergoing real change despite concerns statistics on reform are misleading, according to Hong Kong University Professor Geng Xiao.
Speaking at a lunch yesterday, Mr Xiao said he had worked with the Chinese Bureau of Statistics to compile a review of 1,000 of the 'best' state-owned and private enterprises in China.
'This shows that competition in China is very keen . . . the point that I am trying to make is that there are real changes at the micro level in China and we did not know this before as we could not do the research,' Mr Xiao said. While such information had been made public in Chinese, Mr Xiao said the English version would be available very soon.
He said the statistics painted a positive picture showing that some companies which had not been profitable would be capable of solid improvements next year.
It also showed state-owned enterprises (SOEs) had performed much more badly than private enterprises, although this was not news to those watching the mainland's economy.
'But the numbers tell you that the SOEs are still pretty good,' Mr Xiao said.
For example, from the statistics, very profitable SOEs have a 77.6 per cent probability of continued profitability occurring.
For private enterprises, the probability is 82.2 per cent of continuing profits.
'A high proportion of enterprises will continue to be good,' he said.
For loss-incurring enterprises, the probability of an SOE remaining in a slump in the near future is only 36.7 per cent.
The probability for a private enterprise is just 14.6 per cent.
'The result that you get is that the Chinese economy is extremely strong,' Mr Xiao said.
'The worst scenario is that enterprises would not change - that the loss-making would continue,' Mr Xiao added.
'The key is that a lot of enterprises can become profitable next year.'
Still, he said the study results were of select enterprises and not the 24,000 China groups also looked at by the bureau.
'So the results are much better than if we'd done the analysis of all 24,000,' he said.
Mr Xiao said he was confident China's entry into the World Trade Organisation, expected early next year, would result in the absorption of the unemployed labour pool from rural areas.
He said as the service industry opened up to foreign investment, China's manufacturing sector would absorb those urban workers who would prefer to be employed in the services.
That is, as the service sector grew, urban residents would be employed in that sector, leaving jobs open for unemployed rural workers in manufacturing.
Mr Xiao concluded he was not optimistic on Hong Kong following China's entry into the WTO, saying it would face serious competition from Shanghai.