Private firms up 50pc amid focus on diversification

The booming private sector expanded nearly 50 per cent between 2001 and 2004 amid a government drive for a diversified economy centring on privatising less efficient state firms, a national economic survey has found.

The survey, the first of its kind by the National Bureau of Statistics and released yesterday, found the number of private mainland companies increased by 658,000 to 1.982 million from 2001 until the end of last year.

"This further confirms the trend of dramatic expansion in the sector," said Fred Hu Zuliu , managing director and co-head of China investment banking at Goldman Sachs. "The Chinese economy today is a mixed economy."

Mr Hu estimated the private sector could easily be contributing 32 to 40 per cent of gross domestic product compared with the state sector's 95 per cent when economic reforms were first introduced 25 years ago.

The survey found the number of state-backed companies plunged 47.9 per cent to 192,000 at the end of last year, from 369,000 in 2001. Of those, 169 are directly controlled by the state-owned Assets Supervision and Administration Commission, which aims to at least halve the number of state-owned firms, retaining only those in pillar industries such as oil and shipbuilding.

Similarly, the number of collectively owned companies - remnants of the mainland's transformation from a planned economy to a market-oriented one in the early days of reforms - also fell to 456,000 from 858,000 in 2001.

With the further opening of the domestic market and China's entry into the World Trade Organisation, foreign-funded firms increased by 13,000 to 152,000. With a growing middle class and more people returning home with an overseas education, the mainland also saw a 67.5 per cent jump in domestically funded firms.

But despite the growing significance of the country's non-state sector, analysts said official measurements and forecasts of the overall economic picture would not have included this sector.

The economy will probably expand at a slower pace next year, according to a forecast published in yesterday's official China Securities Journal by Zhang Liqun, an economist at the State Council-backed Development Research Centre.

Ma Kai , head of the State Development and Reform Commission, earlier this week forecast growth of 9.4 per cent this year, almost matching the 9.5 per cent pace of 2003 and 2004.

Premier Wen Jiabao aims to rebalance growth towards consumption and steer it away from over-reliance on investment in fixed assets which led to surging raw material prices and overcapacity in several industries.

This year's growth has been driven by surging exports, which jumped 29.7 per cent in the first 10 months, and investment in fixed assets, which climbed 26.1 per cent. Mr Zhang forecast overseas shipments and spending on fixed assets would rise by about 20 per cent next year.

The Development Research Centre, which carries out research for the State Council, is one of the many state-run institutes that advise the government and provide economic forecasts.

The trade surplus, on course to triple to a record US$100 billion this year, would narrow in 2006, Mr Zhang wrote, without providing a forecast. Retail sales, which the government predicts will rise 13 per cent this year, will grow by about 12 per cent next year.

Overcapacity in some industries would lead to falling prices and lower profits, he said.

Morgan Stanley yesterday raised its estimate for the mainland's economic growth next year from 6.7 per cent to 7.8, citing the effects of stronger exports and declining oil prices.