Cut the red tape or firms stagnate, says consultant

PUBLISHED : Friday, 27 September, 2002, 12:00am
UPDATED : Friday, 27 September, 2002, 12:00am

China has no alternative but to help the private sector by tackling problems such as red tape, the international chairman of consulting firm Accenture said yesterday in Hong Kong.

Speaking at a business forum organised by Forbes magazine in the Grand Hyatt Hotel, Wan Chai, Vernon Ellis said the expansion of the private sector would continue.

More than two million private firms on the mainland employed about 27 million people last year, according to a study by Accenture.

It also estimated that the private sector was responsible for 21 per cent of China's gross domestic product, compared with four per cent in 1990.

Private firms outnumber state-owned enterprises and the role of entrepreneurs is expected to be a hot topic at the 16th Communist Party Congress in November.

'At least 60 per cent of growth in China comes from the private sector now. And I think that's set to continue because there is a massive expanding domestic market,' Mr Ellis said.

He highlighted fragmentation as one of the obstacles for the private sector. Most private enterprises are small firms employing few staff. They operate without the benefits of scale production and few have access to the capital market. Family-run businesses are often criticised as not trustworthy in business, he said.

'If it stays fragmented, then some of the companies won't reach their potential,' Mr Ellis said, adding he was confident that the sector would see a large number of mergers and alliances.

'They [Chinese leaders] seem to be very aware of the need to reduce regulation, reduce interference, increase the effectiveness of the private sector.

'They recognise the private sector has to drive wealth creation. [If] you don't have wealth creation and employment generation, then China will have huge social problems. So the path to growth has to continue for China. There is no alternative.'

He said the central government was pragmatic enough to recognise the importance of a healthy private sector.

'What I can say is that there are clearly some obstacles at the moment in terms of regulations, particularly in some sectors - entry barriers, inter-provincial tariffs, interference by local officials . . . and the whole governance is a bit murky.

'But as far as I can see, the government has shown every sign of recognising that these are issues. And they say they are determined to do something about it.

'The political system is evolving. I see increasing transparency and a government increasing attempts to reduce regulations and red tape, and a belief in enterprise.

'Government in China recognises that they are absolutely dependent on the growth of a vibrant private sector in order to drive wealth creation and then to counter the inevitable strain caused by geographical differences, income differences, unemployment created as state-owned enterprises change.

'These are big social challenges. Only economic growth can take care of them.'