Downsizing Administrative Licensing System and Private Sector Development in the People's Republic of China: A Preliminary Assessment

Abstract

Ideological suspicion against private sector development has been gradually dissipating in the People’s Republic of China (PRC). Ideological change has resulted in the Chinese Communist Party (CCP)’s revision of its constitution to allow private entrepreneurs to qualify for Party membership and amendment of the state constitution to enshrine the private economy as an important pillar of national economy. Creating jobs for first-time job seekers and laid-off workers through developing the private sector is placed high on the CCP’s agenda. Private enterprises are now permitted to enter many sectors once monopolized by state enterprises and to create new market sectors. Both foreign-invested and domestic companies face less restrictions on acquiring state assets. Further private sector development requires a reform of the regulatory regime to make it more business friendly and encourage investors to invest. Reforms of the regulatory regime include two parts: to downsize licensing systems and to enhance government’s regulatory capacity in policing markets and coping with various forms of market failure. This paper focuses on the first part of regulatory reforms. The significance of this part lies in its relevance to the improvement of the business environment on the one hand and implementation of PRC’s commitments to the World Trade Organization (WTO) on the other.