SEAL THE DEAL: Li Shufu, Chairman of China's Geely Holding Group (left), and Lewis Booth, Chief Financial Officer of Ford Motor Co., sign the agreement of Geely's purchase of Ford's Volvo division on March 28, 2010 (XINHUA)

Privately owned enterprises (POEs) now represent the biggest sector of the Chinese economy—by number of companies—as well as the major source of innovation, according to a report released on January 18 by the Chinese Academy of Social Sciences (CASS). It's the seventh report on the private economy released by the CASS since 2005.

Private economy now represents 30 percent of investment in nine major industries among 19 in total, said Huang Mengfu, Chairman of the All-China Federation of Industry and Commerce. In addition, private investment has also increased in state-controlled industries, such as finance and the military industry, as well as hi-tech industries such as information transmission, computer services and software.

All-round achievements

According to the CASS report, during the past five years, the number of registered POEs in China, growing at an average annual rate of 14.3 percent, has reached 8.4 million, representing 74 percent of the total. Registered capital of POEs has exceeded 1.9 trillion yuan ($288.32 billion).

The private economy has made a great contribution to job creation. According to the report, by the end of 2010, more than 180 million people worked for POEs, 60 million more than at the end of 2005, representing an annual increase of 9 percent over the period. During the past five years, large and medium-sized POEs have been strengthening corporate management and personnel training, and attracting and nurturing a great deal of talent. Small POEs have also played an important role in creating jobs and improving people's livelihood.

Huang said POEs—although seriously affected by the global financial crisis—tried hard not to reduce salaries or lay off employees. They helped the government overcome the crisis and maintain social stability.

In the past five years, private companies have also accelerated their overseas activities, with Lenovo's acquisition of IBM's PC business and Geely Holding Group's acquisition of Volvo Car Corp. attracting the most attention. "Daring to acquire world leading brands shows the strong will and power of Chinese private economy regarding overseas development," Huang said.

The CASS report shows that in the past five years many POEs' overseas businesses have expanded from less developed areas in Africa and Latin America to developed areas, including North America, Oceania, Europe, Japan and South Korea.

The private economy has also become a new force in innovation and economic restructuring. POEs have taken the lead in strategic emerging industries and hi-tech sectors such as biopharmaceuticals, new energy and next generation information technologies, with their number far exceeding their state-owned counterparts.

"Founders of many small and medium-sized private science and technology companies used to work in the science and technology area," Huang said. "By starting their own businesses, they have transformed their research into actual products and switched their role from researchers to entrepreneurs. While realizing their own individual value, they have also created a large amount of wealth for all society," Huang said.

Government support

Zheng Xin, Director of the Small and Medium-Sized Enterprises Department of the Ministry of Industry and Information Technology, said Chinese POEs could not make rapid progress without supports from the government.

Private economy could make breakthroughs during the past five years, firstly because the policy environment has been greatly improved. For example, in 2003 the Chinese Government promulgated the Law on Promotion of Small and Medium-Sized Enterprises (SMEs). Most of the POEs are SMEs. Since 2005, the State Council has also issued several official opinions about the private economy and has regarded promoting the development of the private sector as one of the country's major tasks.

"As a series of policies have been formulated and implemented, SMEs and non-state economic sector have experienced stable and rapid development," Zheng said.

Zheng said the Chinese Government has also removed barriers of POEs' entry into sectors formerly monopolized by the state-owned enterprises, such as railways, the military industry, civil aviation, telecommunications, finance, culture and urban infrastructure construction. POEs have now entered almost all industrial sectors.