Development Drivers and Limitations
Global Development Network series
Edited by Natalia Dinello and Shaoguang Wang
Chapter 9: Financing China’s Entrepreneurs: The Role of Legislative Membership
Wubiao Zhou China’s rapid economic growth in the past two decades is widely considered to be one of the major economic miracles since World War II. However, stateowned enterprises (SOEs) have been stagnant during most of this period (Lin, Cai and Li 1996; World Bank 2002). Township- and village-owned enterprises (TVEs) prospered from the mid-1980s until the mid-1990s (Nee 1992; Oi 1992; Walder 1995), but declined drastically in the late 1990s. The only domestic sector which has experienced steady growth paralleling the rapid national economic development is the domestic private sector, referred to here as the ‘private sector’. The size of the private sector and its significance in the national economy snowballed even before the central government began to privatize SOEs and TVEs in 1998. By 1997 the private sector contributed one-third of the total national industrial output and one-fifth of the total national nonfarm employment (Gregory 2000). By the early 2000s, this sector reportedly contributed slightly more than 50 per cent of the national GDP (China Industry News 26 April 2005).1 Nevertheless, the private sector has developed under a harsh regulatory environment (ADB 2003; Byrd and Lin 1990; Gregory 2000; Nee 1992; Peng 2004; Tsai 2002; Zhang and Ming 1999, 2000). Among the unfriendly state policies, the loan practices of the state banking system affect this sector most, because Chinese private entrepreneurs, like entrepreneurs everywhere, are often wealth constrained and need to obtain external financing to pursue their opportunities (Casson 1982). Most banks – even the newly established shareholding...
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