Private Chinese enterprises are making a significant contribution to driving forward China's burgeoning economy. In 2001, total output of the sector equaled about 33 per cent of the country's gross domestic product (GDP), compared to 37 per cent produced by stated-owned enterprises.

Private Chinese firms started appearing in the Mainland around the early 1980s, and have been growing at an annual rate of 20 per cent -- far higher than the average national economic growth rate of 9.5 per cent for the same period.

Last year, 10 private Mainland enterprises each recorded sales exceeding RMB5 billion (about US$600 million). Out of the 1,247 private Chinese enterprises with annual sales over RMB120 million (US$15 million), only 15 registered a loss, putting them in a different league from state-owned enterprises.

In the booming regions of Guangdong, Shanghai and Zhejiang, private enterprises have enjoyed even stronger growth. Out of the top 500 private Mainland enterprises, 383 are located in developed eastern provinces, while 52 are based in the west of the country. On average, 809 private enterprises are established in the country every day, and the sector employs about 42 per cent of the workforce in urban areas.

Despite their success, private enterprises trying to succeed in a socialist-planned economy like China's, have had to overcome a number of obstacles. Prior to China's WTO accession, foreign-invested enterprises said they faced many barriers. They were not alone. In 1988, an amendment to the People Republic of China's Constitution stipulated that private Mainland enterprises could employ no more than eight staff. The regulation wasn't abolished until 1998.

Private Mainland enterprises have also had to struggle to get fair treatment in such areas as land use, business registration, taxation, investment and particularly securing bank loans. According to statistics compiled by the People's Bank of China, less than 1 per cent of loans approved last year went to those who were self-employed or in the private sector. Securing financing through initial public offerings was a privilege reserved solely for stated-owned enterprises.

Entrepreneurs still face a number of challenges when doing business in China, though things have started to improve. One major change is that the Central Government, realizing the rapid development and contribution the sector makes to the economy, has placed more emphasis on developing the sector.

On December 11, 2001, the day that China formally became a WTO member, the State Planning Commission promulgated "Certain Rules Regarding Promotion and Guidance of Private Investment." The law encourages private funds to be invested in areas encouraged and permitted for investment by foreign enterprises. As the majority of private Mainland enterprises are small- and medium-sized firms with difficulties in obtaining funds, the National People Congress in June this year approved "The Law on Promotion of Small and Medium Enterprises," which will come into effect on January 1, 2003.

The law stipulates that the Central Government must make provisions for Mainland SMEs when drawing up its budget, arrange special funds for the development of such enterprises and enlist further support of local governments and the People's Bank. This is definitely good news for the Mainland's private SMEs.

Private Mainland enterprises are not expected to face much competition from foreign businesses entering the China market once China's WTO concessions start to be implemented. However, capital-intensive industries dominated by state-owned enterprises, including transportation, banking, insurance and telecommunications, are expected to be severely hit.

As China continues to open the door wider to comply with its WTO commitments, discrimination and barriers to markets are expected to be dismantled to the benefit of private enterprises. Reform of the banking sector will make it easier for private enterprises to secure bank loans, which will help entrepreneurs thrive in a market-economy and turn the challenges that China's WTO entry is expected to bring into opportunities.

At the turn of the millennium, private Mainland enterprises started to expand into international markets and attracted considerable capital from overseas investors. Many of these companies listed in the stock exchanges of Hong Kong, Singapore and the NASDAQ.

The establishment of Hong Kong's Growth Enterprise Market in 1999 created a sharp rise in the number of private Mainland enterprises seeking listing overseas. Since they used a variety of ways to get listed, the exact number of enterprises listed on the GEM is unknown. But the number of enterprises seeking listing in Hong Kong this year is estimated to be around 100, most of which are private enterprises from the Mainland.

On the domestic front, the trend of private enterprises listing on China's stock exchanges is growing with support of the Central Government. The number of private enterprises listed in the Mainland increased from eight in 1998 to 200 this year, and in the near future, private enterprises are expected to account for 30 per cent of all companies listed on China's stock exchanges.

Before China joined the WTO, private enterprises were prohibited from exporting goods, and as such, only began building an international network over the last few years. As such, many private firms in the Mainland are still young, small firms with limited capital and international trade experience. So despite making a significant contribution to China's GDP, they only account for 6.7 per cent of China's external trade.

Some analysts expect that figure will not change too much in the near future as private enterprises still receive inadequate support and guidance. Another problem is the lack of transparency of Mainland companies listed on the Hong Kong Stock Exchange, which caused their stock prices to tumble last year as investors lost confidence in them. As such, China's private sector has a long march ahead of it to integrated into the global economy, and will need the help of Hong Kong.

Cooperation between Hong Kong and Mainland enterprises will strengthen the latter's competitiveness and possibly pave the way for expansion into international markets.

Private enterprises have overcome many difficulties to make a valuable contribution to the economy. Ten years ago, the Central Government said the private sector complemented the public sector. Today, the table is turning, and private enterprises are expected to soon overtake the public sector as the largest contributor to the domestic economy.