Cover, issue 422, June 8
Translated by Liu Peng
Original article: [Chinese] 

Beijing subway's newly-completed line 4 is due to start trial operation on June 20 this year. It is the first railway project in China financed via a public-private partnership (PPP) model.

However, while this historic project was under way, many other cities were moving away from using private capital investment to finance their public sector works.

Now, as the new subway is about to go into operation, the Chinese economy is experiencing its first major slowdown in a decade. When attempting to predict the likelihood and nature of any economic recovery, the biggest uncertainty for economists is whether private capital investment will pick up again.

Investment aimed at improving the public welfare and that aimed at making profit has often been described as irreconcilable and, because of this, private capital appears to inevitably retreat from investment in the public utilities sector.

This debate has been going on for at least seven years. Even in Beijing, private capital has gradually withdrawn from the public transport sector. In addition, thanks to repeated cases of corruption, private capital is also rapidly retreating from investing in the construction and operation of freeways in the capital.

Some local officials stated that only state-owned public utilities can offer inexpensive and efficient services to the public.

But they have forgotten that in late 1990s, it was them who claimed that privatization of public utilities was essential to controlling the operation costs and quality of public services. At that time, many local governments could not handle the financial burden of supporting state services and competed with each other in their efforts to privatize public utilities.

Although China's economy has made huge achievements in the past years, few people have payed any attention to the quality of private investment. A lot of the time, private investment is synonymous with low-standard, redundant construction and carries with it associations of high-polluting and energy inefficient projects.

The crackdown on such so-called blind investment projects has never stopped.

After experiencing the fierce winter snowstorms that disrupted Spring Festival travel at the beginning of 2008 and the Sichuan earthquake, many people were convinced that state-owned enterprises were both more obedient to government directives and also more willing than private enterprises to assume their social responsibilities.

Now, all eyes have begun focusing on private capital again, this time it's being seen as the savior of China's economy. Attracting private capital investment is once again being added to the governments' agenda, and they're taking delight in clearing away any obstacles to private capital investment.

A new "two whatevers"¹ has also emerged in some local governments' circulars: whatever is not prohibited is allowed, whatever is open to foreign capital is also open to private capital.

We seem to have entered into a strange cycle.

In the good years, few people care about private capital, and calls to tear apart monopolies are overwhelmed by the huge profits generated by giant state-owned enterprises.

Private capital is considered a trouble-maker and each time it tries to break through the limits surrounding a particular market, it's met with a barrage of regulatory controls.

While in the bad times, when nobody is willing to invest, everyone pins their hopes on private capital stepping in. This cycle has repeatedly gone on.

Is this the beginning of another round of the cycle? We hope not.

Private capital is not the emergency service of the Chinese economy. The facts have proved that the vitality of China's economy stems from active investment of private capital. A competitive investment environment also increases efficiency.

If we indeed regard private capital as the main driver of the country's economic growth, we should do away with the pragmatic attitude used in the past and help this economic engine to thrive and prosper.

When times are good, we should spare no efforts to promote market liberalization and reduce the burden on private capital. When times are bad we should also continue to remove all barriers to private capital investment.

Private capital is the driving force behind the growth of the Chinese economy. In fact, each time China's economy has grown rapidly, it's directly related to the removal of barriers to private capital investment and a loosening of regulatory control.

The recovery of China's economy requires the force of private capital investment. It also requires faith in private capital.

Footnotes

1. The original phrase "two whatevers" or 兩個(gè)“凡是” (liǎng ge fánshì) was used by Hua Guofeng following the overthrow of the Gang of Four in 1977. The original two whtevers were - "We will resolutely uphold whatever policy decisions Chairman Mao made, and unswervingly follow whatever instructions Chairman Mao gave."