Here Comes China's New Capitalism

A second stage in China's evolution toward a true market economy is beginning. While attention outside China is focused on negotiations with the U.S. to get into the World Trade Organization, inside the country, capitalism is changing. For the first time, truly private companies are playing a major role in the economy, providing growth, innovation, jobs, and tax revenues.

Until now, most "private" companies were merely hybrids--village or state controlled. Red capitalism often meant the Red Chip corporations trading on the Hong Kong market as fronts for the military or other bureaucracies. At best, they were semi-private, but almost always, they were based on state-owned assets.

Now, companies such as Broad Air Conditioning, are appearing, independent and legitimate. China's constitution was recently amended to acknowledge privately-owned corporations. A new law also has been passed, finally, that delineates the legal rights of private property owners. Beijing is belatedly discovering that private companies that make profits also pay taxes, something money-losing, state-owned corporations--and even many hybrids--don't.

No one really knows how many private companies exist in China. Ownership has always been murky in a society that is still controlled by Communist Party officials. But an increasing number are throwing off their "red hats" to reveal that they are private. One estimate has them accounting for 40% of China's economy and growing. They will soon be a force to be reckoned with, if they are not already.

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