Fortunes of private companies in the hands of local governments

FOLLOWING THE INSTRUCTIONS OF the central authorities, at least seven provincial-level regions have issued supportive policies to ease the burden on private enterprises. Beijing News comments:

The policies are in response to President Xi Jinping's call on Nov 1 for the development of private enterprises to be supported. It is expected that if they are well-implemented, the private companies in these regions might be able to save about 1 trillion yuan ($143.9 billion) in total. More local governments are expected to follow their lead.

Local governments' attitude toward private enterprises is the crux of the matter, as they are the makers and executors of local industrial, tax and administrative policies－which must address the practical needs of local private companies.

The problem is, although the central government has reduced the tax and fees levied on private enterprises significantly, the intended beneficiaries cannot feel the effects.

A key reason is that local governments still rely on the tax and fees from private enterprises as a major source of revenue. Particularly, the collection and the use of various kinds of fees paid by enterprises are almost decided by local governments alone. Thus, few of them are willing to give up this "private revenue".

The other cause is the invisible institutional barrier, such as the regulatory framework governing financing from State-owned banks, participating in government procurement, or the environmental pollution inspections. Although the implementation of these rules can be bent by artificial factors.

Obviously, local governments have considerable discretionary power over the implementation of policies or regulations that are made according to the central authorities' requirements and principles, which increases the uncertainties in the business environment as a whole and gives the entrepreneurs a sense of insecurity.

In other words, relations between private enterprises and local governments are never equal.

Before local officials identify themselves as service providers to the enterprises, it will be hard for them to surrender their vested interests to the business operators for real.