of market reform in the party was China’s private sector politically rehabilitated and could dynamically expand.15 The CCP’s 14th Congress in 1992 introduced the concept of a ‘socialist market economy’, implicitly making the private sector an integral component of the national economy. A year later, the 3rd Plenum of the 14th Central Committee of the CCP replaced the term ‘commodity economy’ with ‘market economy’ in the official ideological speak, underlining that, henceforth, enterprises with different ownerships would compete on equal terms in the Chinese market (Gold, 2017: 468). From here, the private sector developed dynamically. As a result, in 1995, the Party leadership released a statement explaining that all forms of ownership should develop in parallel and with equal rights. The prospering provinces in the eastern part of the country termed the private sector the ‘motor’ of the ‘socialist market economy’ (Jiang Zemin, 1995).
In 1997, the 15th Party Congress declared that although the public sector was to remain the backbone of the national economy, non-public sectors were ‘important constituents of the socialist market economy’ (Heberer, 2003b: 19). This formula was constitutionally codified in 1999 in Article 16 (Liang Chuanyun, 1990; Qin and Jia, 1993).16 In his speech at the founding date of the CCP on 1 July 2000, the then CCP general secretary Jiang Zemin stated that, like workers, peasants, intellectuals, cadres, and soldiers, private entrepreneurs were also ‘builders of socialism with Chinese characteristics’.17 The 5th Plenum of the 15th Central Committee then announced in October 2000 that self-employed and privately owned businesses would be further strengthened. Finally, by including the ‘Three Represents’ (sange daibiao)18 into the party Charter at the 16th National Congress in 2002, private entrepreneurs were officially allowed to join the Communist Party as members of the ‘advanced productive forces’ (He Yiting, 2001; Dickson, 2007: 833).19 These ideological adjustments captured what had been happening on the ground over the years. As Dickson (2007: 832) noted, after 1992, the number of private enterprises grew by 35 percent every year and the number of employees rose to almost 17 million by 1999 (see Table 1).
Table 1: The Development of China’s Private Sector (1989–2004)
Note: The ‘individual sector’ (geti jingji) with less than eight workers and staff is not included in these figures.
Source: Dickson (2007: 833).
It needs to be noted that in the early 1990s, more than two-thirds of China’s registered private companies (but also more than a third of registered individual firms) were still located in rural areas. However, by 1997, the urban percentage of all private companies exceeded 60 percent (62.1 percent) for the first time, while the rural percentage dropped under 40 percent (37.9 percent).20 The increase of private economic activity in the urban areas was the result of a process by which an increasing number of rural entrepreneurs moved to urban areas expecting to expand their entrepreneurial activities more smoothly with closer proximity of markets, easier access to raw materials, and less bureaucratic control.21 In the 1990s, many collectively and state-owned firms were transformed into shareholding companies or companies with limited liability, or they were sold to private entrepreneurs, many of them former managers of collectively owned enterprises who ‘jumped into the sea’ (xiahai) to survive and prosper during China’s capitalist transformation. This gave a strong push to private sector development, as did China’s WTO entry in December 2001 which provided private entrepreneurs with access to world markets, a legally more advantageous framework and, overall, new opportunities for growth and development.22
Two years into the new government of Hu Jintao and Wen Jiabao in 2004, Article 11 of the Chinese constitution was revised again, now explicitly stipulating that ‘the state encourages, supports and guides the development of the private sector, and exercises supervision and administration over the sector according to law’. Article 13 explicitly protects the legal rights of private enterprises by the stipulation that ‘the lawful private property of citizens shall not be encroached upon’. In February 2005, the State Council issued ‘Guidelines on Encouraging, Supporting, and Guiding the Development of Self-employed, Private, and Other Non-Public Entities’ in order to facilitate access for private capital — both domestic and foreign — to sectors so far monopolized by state-owned enterprises (SOEs), like power, telecommunications, railway, air transport, oil, public utilities, etc. (Lin, 2017: 35). After another 3 years, a Property Rights Law was finally promulgated in 2007 by the National People’s Congress. By now, the party state had fully embraced private entrepreneurship, recognizing its contribution to ‘Socialism with Chinese Characteristics’ and its future significance for the country’s economic well-being.23
The rise of the private sector was closely connected to the privatization of China’s rural township-and-village enterprises (TVEs)24 and the vast majority of medium- and small-sized SOEs between the mid-1990s and early 2000s. Many TVEs were private undertakings anyway, as entrepreneurs colluded with local governments for mutual benefit by giving TVEs a ‘red hat’, i.e. registering them as collective enterprises to ensure ideological acceptability (Wang, 2016).25 In the late 1990s, when the TVEs, most of which were producing labor-intensive goods like textiles, machinery parts, tools, or fertilizer, faced increasing market competition because of low entry barriers and, subsequently, falling product prices, large-scale privatization set in. In just a few years, over 90 percent of TVEs became officially registered private enterprises (Oi, 2001; Li and Rozelle, 2003). The privatization of SOEs, which commenced in the mid- 1990s, was a more protracted process as a vast majority were located in urban areas and responsible for the social well-being of millions of workers on the state’s payroll. Politically hedged by a decision adopted by the 15th Party Congress in 1997 to ‘hold on to the large and let go off the small’ (zhuada fangxiao), some 50,000 small- and medium-sized SOEs were privatized between 2001 and 2006 (Dickson, 2007: 836–837).26
Since then, the number of officially registered private enterprises has continuously risen. At the end of 2017, there were up to 65,794 million individual enterprises and 27,263 million private enterprises with a combined labor force of 341 million (see also Table 2).27 Though no detailed data are available, according to official and academic sources, private enterprises today contribute more than 50 percent of China’s tax income, more than 60 percent of its GDP, more than 70 percent to innovation, and more than 80 percent to urban and 90 percent to rural employment. More than 90 percent of all enterprises in contemporary China are private (Wang and Yang, 2018).28 A fair number of them have become huge conglomerates and global players, with top positions in the Forbes Global 2000 and 500 lists.29 Over the years, party leaders have consistently argued for a strengthening of both the private and public sector economy in order to underline the importance of a balanced relationship between the two as the foundation of ‘Chinese socialism’. However, the future of the Chinese economy relies on the healthy development of the country’s private entrepreneurship, no matter how much the party state protects and nurtures the public sector and its most important SOEs, which are now labeled ‘national champions’.30
Table 2: The Development of China’s Private Sector (2005–2017)
Note: *Excluding individual companies (getihu).
Source: National Bureau of Statistics, http://data.stats.gov.cn.
Stages and Models of Private Sector Development
China’s ‘capitalist transformation’ and private sector development have been through several distinct stages since the start of ‘reform and opening up’ (gaige kaifang) in 1978. Wang and Yang describe these stages as follows: (1) the initial stage stretching from 1978 to 1988; (2) a period of decline from 1989 to 1991 following the suppression of the urban protest movement in June