• Source: Retreat of the state, advance of the private sector

Retreat of the state, advance of the private sector, or state retreats and people advance, known in Chinese as guo jin min tui (国进民退), is an economic term referring to the phenomenon of private companies moving forward as state-owned enterprises retreat from economic life. In the Chinese context, the notion specifically means the policy of privatization of state-owned enterprises and the issues it raises during the reform and opening-up process in China. It is a frequently mentioned phenomenon in the Chinese economic growth cycle that started in 2002.
Despite being less profitable - the average return on equity is 4% - state-owned enterprises have easier access to funding than purely private enterprises. The government has encouraged state-owned enterprises to consolidate, favoured them in regulation, and awarded them contracts and subsidies; this crowds out other competitors, both domestic and foreign, undermining the economy. This contrasts with an earlier phase of economic liberalisation in China, where the private sector was seen as flourishing and generating growth; in the late 1990s, Zhu Rongji weeded out some of the weaker state-owned enterprises.
However, in some contexts, "guo jin min tui" has been contrasted with "guo jin min ye jin", meaning "the state and the market develop together".




Airline industry


Six years ago, the central government invited private investors to enter the business. By 2006, eight private carriers had sprung up to challenge the three state-controlled majors, Air China, China Southern and China Eastern.
The state airlines immediately began a price war. The state-owned monopoly that provided jet fuel refused to service private carriers on the same generous terms given the big three. China’s only computerized reservation system – currently one-third owned by the three state airlines – refused to book flights for private competitors. And when mismanagement and the 2008 economic crisis drove the three majors into financial straits, the central government bought stock to bail them out.




History


In 1998, the Chinese government comprehensively launched the policy of "guotui minjin", allowing state-owned capital to withdraw from competitive industries and private enterprises to enter. Since the reform and opening up, China has swung between state socialism and state capitalism, and into the 21st century, it was gradually replaced by "the state advances, the private sector retreats".
After 1978, the first landmark event of the phenomenon of "guotui minjin" in China was the "Tieben Incident" that occurred in 2004. From 2008 to 2009, it reached a climax. The merger and reorganization of coal mining enterprises in Shanxi and the merger of Rizhao Iron and Steel by Shandong Iron and Steel Group were the landmark events.
In 2008–2012, the government's stimulus package, a response to the global financial crisis, pushed up inflation and increased liquidity; this exacerbated the problem of guo jin min tui. As part of the stimulus, the government continued to prop up individual SOEs whilst letting private enterprises fall by the wayside. There have been calls for this system to be reformed, increasing competition and hence productivity.




References






External links


China State Enterprises Advance, Private Sector Retreats
The Nature, Performance, and Reform of the State-owned Enterprises

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