When the land finance space becomes smaller, financing platform is centralized, administration simplification and proper transfer of authority power to the lower level is nearly finished, some local governments sigh that the “good days” is ending.
Over the past more than thirty years since reform and opening-up, central government had been performing administration separately with the local governments. Authority of spending is highly centralized to the central government, and local governments are forced to create their prosperities by land and debt. Even in third and forth tier cities high buildings are emerging one after another and the land price soars very high, which brings operability space for the local governments in the control over land and debt management. The city is so amazing that the foreign visitors entering China are like a granny entering the Grand View Garden – is this the real China? China has vast territory and is abundant in resources. Why do they build so many high buildings? Maybe Chinese are all live in cities?
As you travel around the rural areas in China, what you see is generally left-behind children and elders. Strong young men either open business or find a job in cities. Even schools and hospitals in rural and urban areas have great difference. At cities, there are always crowed people waiting for entering hospitals and schools, while there are only a few people in rural areas. Medical and education resources allocation are beyond the government control, resulting in great loss of transfer funds in support of agriculture. Therefore, Premier Li Keqiang put forward in the first work report the concept of “new human oriented urbanization should be pushed forward”, “local urbanization” and “local employment”.
This unbalance has been developed to an extreme extent. As the central government didn’t tighten the control over land trading, spontaneity of the land market reached an extreme extent, which is difficult to continue with the economic downturn. Actually, local governments are not without reserved lands. If there is no demand for land, failed auction would happen, and some region even cannot sale one land out in a year. Therefore, isn’t is a good thing for the central government to take measures to reduce the risk of local government? It is better to abandon the practice which overdrew the “good days” of our futures and generations.
Are the “good days” really ending? I delivered one session of “The Turning Point” titled “Small but Not Weak” in Hangzhou. I mentioned that the small sized enterprises in China “account for over 90% of the total number and create more than half of the gross industrial output; grow as one falls another rises; they can withstand the risk though small in size and the survival of the fittest can be one of the top 100 companies”. Over the past more than thirty years, China had been implementing the policy of “managing large enterprises well while relaxing control over small ones”. The small sized enterprises which account for 97% of Chinese enterprises create 60% of the gross industrial output value, 57% of the sales volume, 40% of taxation, 85% of employment, over 50% export and taxation; while the mid and small sized enterprises which account for 99.7% of Germany companies create 48.8% of the gross industrial, 70% of the employment, 46% of the investment and 40% of the export. The contribution of small sized companies in Germany is lower than in China, but they are highly supported by the government.
Germany government implements the policy of “limit the large and support the small companies”. One important function of Germany Federal for Economics and Technology and Cartel Office is to supervise monopoly and implement “limit the large and support the small companies”. This is different from our land, taxation and trade preference, talent and financial support policies which tend to support the influential ones. 70% of their financial support fund is used to support the mid and small sized companies. Services for mid and small sized companies organized by government, finance and non-government organizations are inclusive, including special bankruptcy and re-structuring mechanism to prevent closure and unemployment of mid and small sized companies on the verge of bankruptcy. Therefore, the leading position of Germany economy in overwhelming global economic crisis is because of its constant support for the mid and small sized companies which on the contrary made the mid and small sized companies healthier and stronger in global financial crisis (sales volume and capital adequacy increased by 6% to 8%, and only 8% of the mid and small sized companies is closed).
Likewise, the support for mid and small sized enterprises in America is also worth our learning. Their low threshold for starting business is admiring and the location is not restricted. Several college students can produce air-ground craft and tank at basement, sale them on the market, and event get allocation of funds from Department of Defense, which is imaginable in China. American law specifies that 20% of government purchase must be guaranteed for small sized enterprises. Law specifies that government provides guarantee for different loan amount of small sized enterprises (the longest guarantee period can last for 25 years), and the maximum guarantee can cover 90% of the loan amount, which is not reachable in China. Therefore, America is the country where all people are involved in business start-up and innovation.
Premier Li Keqiang always advises the finance institutions in earnest not to lean only on the moneybag and shall tilt towards entity economy, such as agriculture, rural area, famers and small sized enterprises. On World Economic Forum hold in Tianjin, Premier Li put forward the concept of “All People Involved Innovation and Business Start-up” and indicated that the constraints of enterprise and individual for business start-up and innovation should be removed. By comparing the domestic development environment with overseas for small sized companies, we can identify where the constraints and binding elements come from.
What is the cause? It lies in the concept and system, as I mentioned in “The Turning Point”. I mentioned that “managing large enterprises well while relaxing control over small ones have been implemented for 30 years; macroeconomic orientation is reflected in microeconomics; as new concept is implemented in business start-up and maintenance, there is no need to worry”. Except the above causes of ideology, policy orientation and system, the worries of small sized companies’ owners are also a philological barrier. The worries come from business start-up, business maintenance, managing people, asking for help and carrying out innovation. This kind of restricted, old-fashioned and dogmatism way of thinking result in the current status of hard business start-up and maintenance of small sized enterprises.
Why there are more than twenty thousand enterprises with a history of over one hundred years in Japan while only five in China? The cause is not complex – the mid and small sized enterprises are developing very well. Companies with long history in Japan are mostly mid and small sized private companies, rather than mid and large state-owned companies.
97% of the small sized enterprises in China are private companies. They are striving for survival under pressure. Though under the policy “managing large enterprises well while relaxing control over small ones”, they still can achieve the brilliance of creating over half of the gross industrial output. Fact proves that as long as one district is developed in terms of small sized companies, urban and rural residents lives also improve. And all the mid and large companies are developed from the small ones.
If we can actually implement the central government policies on administration simplification, authority decentralization and support for small sized enterprises, with more care and support (with fair and equal treatment, instead of “limiting the large and supporting the small companies”), the “good days” of local government would come soon.
It would be wise decision for the local governments to welcome the “good days” to change the economic development mode of relying on land and debt, change the reliance on large companies for economic growth, and accelerate the development of mid and small sized enterprises.
