Does Wen really mean it this time?
It is time for private business to stand up and be counted alongside the giant state-owned enterprises if the mainland's economic rise is to be put on a sustainable path. But small- to medium-sized businesses are handicapped by lack of access to financing. As Premier Wen Jiabao has said, this means the big state banks' monopoly on business financing must be broken to allow private capital to enter the sector.
Now in the last of his 10 years in office, Wen has long championed such reform without success. Meanwhile the stranglehold on capital by state enterprises is getting tighter, even as China's economy is slowing and private enterprise is stifled by tight lending conditions. The big four state banks are doing very well by lending to state firms. But private businesses have been starved of funds and this has spurred the growth of illegal underground banks to meet their needs. Emblematic of the problem is the controversy over the death sentence of 31-year-old billionaire businesswoman Wu Ying for illegally raising up to 770 million yuan (HK$947 million) from the public with aggressive interest rates to finance a thriving private business sector in Wenzhou . A Zhejiang provincial court judge has disputed her motive, but the official Xinhua news agency has reflected sympathy for her. It published a plea from academics, economists and businessmen to the authorities to review her case.
Since then Beijing has effectively acknowledged the lending problem by declaring Wenzhou a special financial zone and legalising its underground banking sector, which is seen as a significant step towards liberalisation. Last week Wen told private entrepreneurs that allowing private capital to enter the banking and financial sectors was intended to break up the banking monopoly.
Wen's session with the entrepreneurs, reported by China National Radio, was the first time he has openly laid into the state bank monopoly. This reflects Beijing's concern to help reverse the economic slowdown, with SMEs seen as critical to sustaining growth and job creation. The premier's remark that state banks profit too easily from their cosy relationship with SOEs, while SMEs languish in the queue for capital, has rattled executives at the big lenders and sparked wide debate. He cited the Wenzhou experiment as a step towards breaking up the monopoly and furthering nationwide reform.
But does he really mean it this time? Some wonder whether his real agenda is to prod state banks into giving more attention to the private sector. The noises made by Wen are welcome, and the Wenzhou experiment certainly signals action instead of words. But a state monopoly entrenched in massive strategic sectors like telecoms and energy has formed formidable vested interest groups that will put up strong resistance to reform. If Wen does not have enough time left to overcome it, the next generation of leaders must.
