The Dialectical Relationship Between State and Private Enterprise

China became the world’s factory at the turn of the new century, and the vast majority of the goods were produced and exported from the private sector. However, due to socialist ideology, 35 years ago the private sector was a political taboo and forbidden to exist in China, and the economy, which was dominated by the inefficient state sector, was on verge of collapse. The economic reform starting in the 1980s resulted in a sharp increase of the private economy and a rapid decline of the state sector. Now the private sector enjoys a considerable currency and has generated significant prosperity. Since 1985, the private sector has been the most dynamic source of industrial output growth. From 1992 to 2002, the number of private enterprises increased from 140,000 to 2.4 million; the annual growth rate was 33 percent. China’s registered capital increased from 22.1 billion RMB to 2,475 billion RMB, growing by 60 percent annually, while the number of employees increased from 2.3 million to 34.1 million (Quan 2008). Te persistent growth differentials have translated into a significant shift in the composition of industrial output by ownership types. Until 1990, state-owned enterprises (SOE) and collective-owned enterprises (COE) accounted for more than 90 percent of gross industrial output; in 2000, SOEs accounted for 47 percent of total industrial output.