Boom of new firms is not what it seems

There would be no more need for local governments to design various fiscal incentives for the initial employment of those young men and women.

However, things can't be so simple. From business reports of the provinces, the quality of the new companies is dubious.

Most of them are small - that is, with a capital commitment of less than 5 million yuan by the government's registration standards.

At the same time, they are reportedly concentrated in distribution and retail business - a category that may also cover logistics services in China.

Such companies come and go frequently. They come when government policies and the business environment are good, and they fold when the policies are no longer helpful or the market turns sour.

Their large number can influence a city's GDP structure, to make it look more service-oriented.

But they hardly contribute to a local economy's long-term resilience and competitiveness.

Even worse, according to a news report from Tongxiang, Zhejiang province, these newly registered companies are still concentrated in the traditional textile and garment industry.

This could be even more dubious because it can be an easy way for the boss of a defunct garment factory to evade debt and wage owed to workers.

Only in a few cities did companies in information and technology services, however small they might be, account for a noticeable share of the new companies.

There were even fewer privately held services in education and health care, two industries that are most important for a city's sustainable economy.

This betrays the reality that many of the old policy restrictions remain intact, preventing the economy from seeking quality growth.

Bureaucratic resistance to change and ineptitude in public service still persist despite liberal policies from the central government, such as no longer setting an official capital requirement for establishing a company.

Perhaps, for any reform policy to realize its best potential, it would take the revision of another 10 or 20 policies.

And to revise them one by one would be a much more demanding task. Central-level officials have shown their determination to do so, but doing so - as part of the economy's transition process - will take much more time.

The author is editor-at-large of China Daily.

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