China unleashed: How family business powers the Chinese economy
On 13 December, 1978, not long after China was out of the grip of Mao’s Cultural Revolution, then-leader Deng Xiaoping delivered a radical speech to his Communist Party proposing China learn from richer countries, allow workers and peasants to compete to get ahead, and give enterprises the power to make decisions or try new ventures.
Just five days later, a council of 300 party elite agreed to adopt Deng’s vision, and China kicked off its journey from economic seclusion to becoming the world’s factory.
It was after this agreement that almost all mainland China’s private family enterprises were formed and since then, China’s government has issued a series of policy measures to encourage and support the development of the private sector. Although the number of family businesses in the country is unknown, PwC’s Global Family Business Survey 2018 says there were 27 million private enterprises by the end of 2017, with family businesses forming the majority. The All-China Federation of Industry and Commerce previously estimated 80% of private enterprises are classified as family businesses.
Whatever the true number, private enterprises have emerged as a vibrant force in the nation’s economic development, providing more than 60% of China’s GDP, 75% of technological innovation, 80% of employment, and 90% of new urban jobs, according to the government.
Such is their significance to China’s economy, privately-owned businesses are being vigorously supported by government policies. In September 2017, the Communist Party and the State Council jointly released a guideline encouraging entrepreneurship to drive market confidence, while last year, China’s 19th Congress report called for “supporting the growth of private businesses” and getting rid of regulations and practices that hamper the development of a unified market and fair competition.
Even president Xi Jinping has vowed to safeguard and encourage the development of private enterprises with substantial tax cuts and bailout funds, over fears the government was looking to nationalise them.
Fan Gang, president of Shenzhen-based think tank China Development Institute, says the policies show the government is depending on private enterprises to boost the country’s development.
“China will increasingly rely on endogenous innovation to spur economic developments in the future, a process that needs risk takers from private businesses, while state firms, always slower and more cautious in decision-making, are relatively less vigorous and not that willing to take risks,” he told state-run newspaper China Daily.
But not all of the government’s policies have helped family businesses. Due to the One-Child Policy, which lasted 35 years until 2016, family firms are now facing a potential succession crisis. Research shows that even with only one to choose from, 80% of second generation heirs have no desire to join their family’s business. With as many as three million entrepreneurs reaching the age of retirement in the next decade, and with no government policy to help, family businesses will have to look outside the family to plug the gap.