Business neglect

Lin Bin is a man on a mission. Not yet 30 years old, the Shantou native wants to transform his start-up, privately-owned empire of 10 Guangzhou supermarket-warehouse stores into a regional Mainland challenger, ready to square off against the likes of France's Carrefour and Wal-Mart of the US.

He already is well on his way. Sales at Daoneijia, which in Chaozhou dialect means literally ?cheap prices,? reached Yn300m last year. Lin's store ranks as the 32nd largest retail chain in the country and the third biggest in Guangdong province, according to a national survey published by the State Administration of Internal Trade. If all goes to plan, in coming years Daoneijia will expand into neighbouring Hunan, Jiangxi and Fujian provinces.

Dynamic sector
Lin's decision to launch his operations in Guangzhou was no accident. The city's private economy is among the most dynamic in the country and its openness to outside participation is legendary. According to the Guangzhou Bureau of Industry & Commerce, the number of private enterprises operating in the municipality is growing by about 1,000 each month, reaching 35,359 at the end of June 1999. The total registered assets of these enterprises reached Yn28.4bn in June, representing an increase of 75 percent over the same month last year.

The total number of non-state companies operating in the city – including individual household enterprises – is around 250,000, employing more than 635,000 people. These are more than double the 1992 totals, when the city recorded 122,000 non-state companies employing 245,000 workers. The rapid growth of private firms is helping to alleviate unemployment problems in the city.

Open to outsiders
The driving force behind Guangzhou's thriving private economy has been the entrepreneurial vitality of its residents and the local government's recognition of the sector's importance, says Mr. Tang Guocai of the semi-official Guangzhou Municipal Private Enterprise Association. "The leadership recognised at an early date that the private sector was one of the four legs of the economy," he adds.

Starting in 1993, the municipal government initiated a series of measures designed to encourage non-state ownership. In September 1997 Guangzhou became the first city in China to pass legislation specifically aimed at protecting the property rights of private businesses. Last year those regulations were supplemented by a party and government joint decision outlining tax and other incentives for establishing private enterprises by non-city residents, as well as the formation of private high-technology companies and employment of laid-off state workers.

The contribution by non-Guangznou residents has been crucial, with one in every three private investors coming from outside the city. "Outside entrepreneurs are usually more capable, better educated and start better quality companies," observes Chen Heping of the city's industry and commerce bureau.

Proven ability, however, continues to provide no substitute for government backing. Most private companies are engaged in service trades rather than manufacturing due to the inability of entrepreneurs to obtain needed official approvals and bank lending. "We private enterprises are without fathers," says Daoneijia's Lin. "There is nobody to care for us."

That is particularly true when it comes to obtaining start-up capital. Lin himself relied on Shantou backers to open his first retail outlet in 1997. He has mustered only Yn5m in bank loans to date, despite increasing annual earnings and amassing fixed assets of almost Yn20m. "Banks are more willing to lend to state companies because when there is repayment failure it is easier to write it off," he explains.

Guarantee fund
One landmark measure designed to remedy the situation was the formation earlier this year of a special Yn50m guarantee fund to provide working capital loans to small and medium-sized business. Capitalised jointly by Guangzhou's Liwan district government and managed jointly with China Minsheng Bank, the fund promotes lending to non-state enterprises in the district by providing bank guarantees to borrowers short of collateral.

One of the first enterprises to receive a guarantee fund loan was Gold Kings Ornament Company, a manufacturer of building furnishings, such as ceiling panels and window panes, used in public facilities and skyscrapers. The company has supplied materials to the Guangzhou and Beijing metro systems, as well as the 88-storey Jinmao Building in Shanghai.

"I started my factory five years ago with Yn200,000, six workers and one machine," says company chairman Xie Xiangqing. "Now I'm doing Yn40m in business every year and I employ 170 workers. What I need is more money." Gold Kings will use the Yn2m it borrowed from the fund to upgrade its factory, adds Xie.

Minsheng Bank says it is now negotiating with other district governments in the municipality to create similar funds throughout Guangzhou. It is also in discussions with the Guangdong Federation of Industry and Commerce to launch a province-wide scheme.