Editor's notes: In mid-January, the All-China Federation of Industry and Commerce published a report on the development of the country's private sector during the past year and the difficulties and challenges it faces. Excerpts from the report follow:

China's private sector has shown strong vigor during the past year, contributing considerably to the country's goal of maintaining steady and relatively fast-paced economic development amid the complicated internal and external economic conditions.

The sector has seen tangible growth. Statistics show that by the end of the third quarter of 2011, the number of registered private enterprises in the country was more than 9 million, a year-on-year increase of 14.9 percent. Their registered funds were almost 25 trillion yuan ($3.96 trillion), an increase of 38.6 percent.

Private sector investment, too, has increased. By the end of October 2011, domestic-funded private enterprises had invested 14.2 trillion yuan in urban and township fixed assets, a year-on-year increase of 46.5 percent. That accounted for 58.9 percent of the country's total investment and was 7.8 percentage points higher than the figure at the end of 2010. Private enterprises' exports have also increased in proportion to the country's total; with their volume from January to November 2011 increasing 33.3 percent year-on-year to more than 570 billion yuan, one-third of the country's total export volume.

The uninterrupted fast growth in private enterprises' exports has played a crucial role in checking a rapid decline in the growth of China's overall exports.

Apart from its relatively fast development, the private sector has also expedited measures to make structural adjustments in compliance with China's ongoing efforts to promote economic restructuring and transform its economic growth model.

According to official figures, the number of private enterprises engaged in the tertiary industry and the value of their registered funds have grown faster than in other sectors over the past three years. This is part of their accelerated shift from high-energy-consuming, high-polluting and low-efficient industries to high-tech industries with stronger core competitiveness that conform to the country's energy conservation and environmental protection requirements.

The booming private sector has contributed much in creating jobs and increasing urban and rural residents' incomes.

But since the world economy is undergoing complicated and profound changes and facing growing downturn pressures, China's private sector has also encountered some difficulties and challenges.

Private enterprises, especially small ones, face major difficulties because of the drastic increase in their production and operating costs in recent years. The increasing costs of production, ranging from higher energy and resource prices to the rising cost of labor and higher rents, have directly squeezed their margin of profit and chances of survival. Their plight has been worsened by unendurably high taxes and other assorted charges.

Though the government is paying greater attention to easing taxes and reducing other charges, as indicated by the adoption of a series of policies and measures in the past year, the tax burden for domestic private enterprises is yet to be mitigated.

Financing difficulties also remain a problem for domestic private enterprises, especially the small ones. According to the China Banking Regulatory Commission, bank loans have mainly flown into large and medium-sized enterprises, leaving smaller ones underfunded. Worse, unlike their larger counterparts, small enterprises usually cannot avail themselves of the preferential benchmark interest rates policy and thus have to pay much higher floating rates, further increasing their operating costs.

To boost the domestic private sector's development, the government has to first adopt an all-inclusive preferential taxation policy, targeted at domestic small enterprises. Also, it should take measures to ensure that small businesses have equal access to normal financing channels to guarantee their survival.

Besides, the government has to continue encouraging domestic commercial banks to actively develop various kinds of financial products, suitable for small businesses, and expand the scope of mortgage products. It should also take practical and forcible measures to develop township and village banks, as well as community banks to create conditions for grassroots financial bodies to serve grassroots enterprises.

Direct non-governmental capital should be encouraged to flow into the real economy and lower the market admission threshold for the entry of private enterprises into monopolistic fields or those with strategic importance.

Moreover, a favorable environment should also be created to facilitate the fledgling "going global" strategy adopted by some private enterprises. A legal procedure aimed at promoting domestic enterprises' overseas investment should be launched as soon as possible to provide them with legal guarantees to push forward such a campaign. But for that to happen, a pro-overseas investment financial system and a special risk investment fund have to be set up.

(China Daily 02/07/2012 page8)