Problems and Prospects with Respect to China’s Private Sector Firms: Building a Free Market Economy

China, with a population of more than 1.3 billion people, is the second largest economy in the world. It has become a global powerhouse with strong and consistent economic growth since the introduction of a series of key reforms in the 1970′s and 1980′s. As a country with a long tradition of a centrally planned economy, these reforms to a more market driven system have taken some time and they are both controversial and complex. Indeed, the current composition of the economy continues to include a mix of government controlled firms (including numerous state-owned enterprises) and private sector firms. An analysis of recent reports and case studies suggests that the scale and pace of change to a market driven economy will continue to be more gradual than many commentators expected. As a preliminary issue, we see that the definition of “private sector” business in China remains quite different as compared to the Western concept. In addition, access to capital (both human and financial) remain key concerns for private sector firms who must compete with state-owned and other public sector firms. Organizations such as the World Bank and the Organization for Economic Co-Operation and Development (OECD) have weighed in to both acknowledge the robust growth of the Chinese economy and the changes that have been made as a result of this growth. However, the World Bank, the OECD and others have raised some concerns about the pace of change and the very real need to develop a private sector that can ensure more efficiencies in the delivery of goods and services throughout the country.