China Premier Li Keqiang: “Stirring up vested interests is more difficult than stirring up one’s soul”; In China, Gov’t and Business Go Together Like Horse and Carriage – Sort of

11.07.2013 19:10

Closer Look: In China, Gov’t and Business Go Together Like Horse and Carriage – Sort of

It’s love, one entrepreneur says, but not marriage, and making progress on improving the relationship will be tricky

By staff reporter Gao Yu

(Beijing) – Premier Li Keqiang met with scholars and entrepreneurs on October 31 in the capital to discuss the economic situation. It was the third such meeting Li has held since taking office in March.Jack Ma, chairman of e-commerce giant Alibaba Group, attended the meeting.

“The confidence of China’s economy to a large degree comes from the entrepreneur,” Ma said. “And entrepreneurs, especially private businessmen, hope to get more trust from the government.”

And Li responded by saying: “The government not only trusts but also relies on private businessmen.”

The meeting signals that the new government cares about private business and serves to boost confidence in their future. But individual companies may not have reason to be optimistic, at least in the short term.

The relationship between businesses and the government has never been simple since reform and opening up started in 1978. In the 1980s and 1990s, China was shocked at the gap between its market and that of the outside world. Officials seeking investments welcomed businessmen whether they were Chinese or foreign.

However, since 2000, when China began deeply involving itself in international economic activities, officials have used their position to intervene in private business. Meanwhile, over the past decade collusion between businessmen and officials has been the cause of a great amount of corruption.

Therefore, the balance between government and business, officials and entrepreneurs is a serious question. If the relationship is too cozy, it may involve graft. If it is too distant, entrepreneurs may find it difficult to gain access to resources controlled by the government and overcome the hurdles involved with expansion.

Ma once described the relationship between private business and the government by saying the two are “in love but not married.” This is not ideal for officials and not sustainable for businessmen.

In recent years, an increasing number of private businesses have tried to court state-owned investors. This has served to expand the state’s presence in highly competitive industries dominated by private players.

When it works, the arrangement benefits everyone, but that’s not necessarily a good thing. State investors do not have to participate in a company’s operations, but still enjoy sound returns. For selling equity to the state, private entrepreneurs are covered by the large umbrella of officialdom. This is safer than building ties with individual officials.

However, this is not very healthy for either and it limits room for future development.

Ultimately, normalizing the government-business relationship requires reforms. It is no secret that the government and officials are usually in a stronger position than companies and entrepreneurs. That is why the new leadership has made it clear it wants to simplify administrative procedures – another way of saying the hoops officials have businessmen jump though – and reduce government involvement in the market.

However, Li himself has hinted at how difficult making progress will be. “Stirring up vested interests is more difficult than stirring up one’s soul,” he said.