Reviving a new engine(2)

LIVELY DEBATE: Private entrepreneurs and scholars exchange views on deregulation and market opportunities at a roundtable discussion on the sidelines of the Boao Forum for Asia on April 9 (CFP)

The country is heading toward an aging society. "China would be the world's most aged society by the year 2030, with a higher proportion of people aged over 65 than in other countries," said Barns.

Urbanization will also advance domestic consumption. Premier Li said that narrowing the gap between urban and rural areas and among different regions would also unleash huge potential for growth.

Now, rural people spend more on food and housing while urban households spend more money on transportation, communication and recreation. As more and more of the rural population migrates to cities and towns, there is considerable room to reduce this gap.

"Each year, millions of rural consumers become first-time brand buyers," said Barns, who noted that huge business opportunities would be discovered among the group of new consumers.

The question now is how to turn these new urban residents into real consumers. Despite the fact that China has gone all out to push for urbanization in recent years, the ratio of consumption against the GDP hasn't been remarkably raised.

Many rural people who have migrated to urban areas are not included into the social security network, and some of them even don't own a house to live in or have a job to support their family.

As Barns noted, only when people feel secure about their future well-being, can they show a strong willingness to spend their money.

To enhance people's sense of security, China's urbanization should shift its focus from blindly expanding the size of the city to lifting people's living standards, such as allowing these who migrate to cities and towns equal access to social security, medical treatment and education with urban residents, said Zhang Xike, Greater China President of private equity investment group Apax Partners.

"Each year, over 10 million people settle down in urban areas, and most of them are in their 20s and 30s. This will inject great vigor into the consumer market," he said.

Spark entrepreneurship

Some participants pointed out that reforms should be carried forward in the public sector, and state-backed companies need to be more professional and innovative. They also argued that the private sector should be allocated with more resources and be allowed to compete into more areas.

"The government should make clear companies' ownership, protect entrepreneurs' property rights and enhance judicial transparency and equity, as well as reduce its stake in state-owned enterprises. In this way, business owners will feel free to expand and innovate," said Zhang Weiying.

Compared with large state-owned enterprises, small and medium-sized enterprises (SMEs) are under greater pressure to innovate, and some of them even spend more on this front than their counterparts in the West.

"The development of SMEs, which make up the bulk of the private sector, is largely affected by the banking and credit system," said Edmund Phelps, American economist and winner of the 2006 Nobel Memorial Prize in Economic Sciences.

"Most of them feel frustrated by competing for loans from state-backed commercial banks, and have to seek private loans with annual interest rates as high as 20 percent to 30 percent, which pose great challenges to small and micro-businesses," said Huang Rong, Vice Chairman of the All-China Federation of Industry and Commerce.

"The government should encourage entrepreneurship in the private sector, which will also stimulate domestic consumption, because profit earned by these companies mainly goes into the pocket of consumers, while that of state-owned ones always goes straight into the hands of the government," said Phelps, who advocated that supply management would help realize sustainable growth.

In February, the China Banking Regulatory Commission unveiled the first batch of licenses for private banks, which will broaden SMEs' access to loans and provide low-income families with more long-awaited financial services.

"The move will enable those being refused by state-owned banks to grow with more financial support," said Chen Zhiwu, professor of finance at Yale School of Management, who highly praised the success story of China Minsheng Banking Corp.