The business environment remains generally good. Various reform measures show initial results.
1. China’s business environment is improving gradually with the environment for government affairs, the rule of law and the market as a whole remaining good.
In recent years, China’s business environment has continued to improve as the central and local governments at all levels focus on the transformation of government functions by streamlining administration, delegating powers, integrating delegation and regulation and optimizing services. Viewing from overall samples, half of the enterprises (50.7%) are satisfied with the business environment, while 46.3% of the enterprises rated "average". Those who rated "bad" or "very bad" only take up 3.1%. Degree of satisfaction varies in different regions, with the central region accounting for 53.5%, eastern region for 51.9%, northeastern regions for 50.3%, 0.4 percentage points lower than samples' average while that in western region was only 41.9%, the lowest among all. The total rating of bad and very bad takes up less than 5%, signifying the trend of overall improvement in business environment in all regions.
The environment for government affairs has been recognized positively. 70.3% of the sample enterprises give a rating of good for the transparency of government policies, regulations and rules. 62.8% of sample enterprises rated good for the streamlining of administrative procedures. 12.2% of them think that the comprehensive cost of dealing with government and supervisory departments is relatively high. 64.9% of sample enterprises think that the charge of fees, apportionment and fund raising not specified by the laws are relatively rare.
The environment for the rule of law is satisfactory. 62.1% of the sample enterprises agree that judicial organizations are just and efficient. Only 1.5% of same enterprises gave a rating of "bad". The degree of satisfaction in eastern region reached 64.7% while that in the western region stood at 52.8%, the lowest among all. The litigations cost is considered by 53.7% of the sample enterprises to be average and by 29.3% to be low.
The overall market environment is good. 63.8% of sample enterprises think the discrimination against different regions by local governments is relatively rare. From the perspective of the environment for financing and credit, 55.7% of sample enterprises agree that the additional charges for bank loans are small in number, and 49.6% think the credit in local business environment is relatively high. All regions deem that protection of patents and brands is relatively high, with only less than 6% think that the proportion is not enough.
2. The improvement of business environment has reduced some costs of financing, taxes and fees, and the operating conditions of enterprises have bettered.
First, the external financing cost of enterprises shows a downward trend in general. Bank loan weighted average interest rates of sample enterprises fell from 7.24% in 2014 to 6.49% in 2016, a drop of 75 basis points. The expense ratio of equity financing dropped to 1.42% in 2016 after its rise to 1.63% in 2015. The cost of other financing methods fell from 7.54% in 2014 to 7.07% in 2016.
Second, the burden of taxes shows a trend of decline. The total share of taxes in sample enterprises' business revenue over the past three years amounts to an average of about 5%. The proportion of all taxes paid by enterprises in the comprehensive cost is about 5.5%.
Third, the proportion of newspaper and magazine fees, membership fees for associations and chamber of commerce and other fees related to enterprises in the business revenue and cost of sample enterprises declined.
The improvement of the business environment has also stimulated the market vitality and social creativity and improved the operating conditions of enterprises. The business revenue of sample enterprises decreased by 6.4% in 2015 but rebounded by 2.25% in 2016 with the total profit increased by a small margin. From 2014 to 2016, the average annual growth rate of labor productivity of the sample enterprises exceeded 20%.
Current problems
1. The reform is not in place, for the cost of electric power is still high and the cost of logistics is on the rise;
The reform of power and circulation system is not in place, resulting in high cost of power and logistics, etc. For example, the electricity cost of sample enterprises in 2014-2016 basically remained unchanged (0.88 yuan per kWh), and the difference in regional electricity prices is huge. The preferential power tariff of 0.5 yuan per kWh enjoyed by Sinosico in Luoyang is still significantly higher than the price of 0.2-0.3 yuan per kWh for similar enterprises in Xinjiang Uygur Autonomous Region and Inner Mongolia Autonomous Region.
Furthermore, influenced by the many factors such as fluctuation of oil price, high labor cost and the increase of iterative cost caused by technology upgrading in recent years, the cost of logistics is on the rise. Between 2014 and 2016, the proportion of logistics in operating and total cost increased by 4.9% and 3% respectively.
2. The litigation cost is high.
The survey shows that 62.1% of the sample enterprises think that the judicial organizations are fair and efficient, but the degree of satisfaction in the western region is only 52.8%. Only 29.3% of the sample enterprises think that the litigation cost is low. But, among those sample enterprises which still think the litigation cost is high, the percentage is 17.0% for all, 21.5% for the western region, 19.3% for large enterprises and 16% for the small enterprises.
3. Difference in financing cost between different economic subjects is huge.
For example, the bank credit fund mainly flows to the state-owned enterprise and the large-and-medium-sized enterprises at low cost, but the private enterprises and the small and micro enterprises will find credit financing relatively difficult. From 2014 to 2016, the weighted average interest rate of bank loans for state-owned enterprises was 6.13%, 5.91% and 5.26% respectively, which is obviously lower than the 7.65%, 7.41% and 6.79% of private enterprises during the same period.
4. Government supervision and service in some regions are still not in place.
The survey shows that some areas are encouraging "premarital pregnancy style" investment, resulting in the industry access featuring low threshold and low-level excessive competition. Only 34.7% of the sample enterprises considered the market access restriction to be low, as administrative measures or discriminatory quality inspections are employed to prevent entry into local market.
Weak supervision intensity, low supervisory competence, low cost for the loss of credit. Only 48.8% of the sample enterprises believe that the degree of protection for patents and brands is high, and that the percentage in the western region is only 35.5%. Fewer than half (49.6%) of the sample enterprises think the credibility level is high in local business environment. In the western region, that the percentage drops to 38.8%.
Although investment service centers and enterprise service centers have been set up in some areas, there are still problems like inadequate service and inconvenience. The review and approval reform and its implementation are not in place, with procedures for some investment projects too complicated to be simplified. There is a lack of awareness of initiative to offer active service as the unwillingness to bear responsibility makes the procedures even more difficult. There is still a big gap before meeting the demand of the central government.
To improve business environment, governments shall improve themselves.
1. Governments shall further build their capacity in delivering information service.
Information is an important resource in the information age. Government information has a bearing on the stability of business expectations and on investor's confidence. However, the government's supply of this kind of resources is seriously insufficient with poor quality. Relying on the new generation information technology such as the Internet of Things, cloud computing, large data and space geographic information integration, governments shall innovate information 4
ervice and build a public information platform to promote the sharing and centralized management of information between departments, the access to government information and to lower the institutional transaction costs in the search of data by market entities.
2. Governments shall promote the construction of social credit system.
Market economy is credit-based. Social credit is a matter of decisive role in the normal operation of market economy, which is a focal point in The Theory of Moral Sentiments written by Adam Smith. The cost of transaction is of high relevance to social credit. The core of the construction of business environment is the establishment of social credit system.
The establishment of social credit system shall be led by governments. The problems such as the lack of continuity of local government policies, the neglect of old debts by new officials and the arrears of enterprise funds not only affect the credibility of the government but also increase the transaction cost of enterprises. Therefore, the pressing matter of the moment is to speed up the construction of good faith in government affairs and judicial system, standardize administrative decision-making, administrative law enforcement and administrative supervision according to law, improve the mechanism for government to honor their promises and held them accountable if they break their promises, and perfect the disclosure system for judicial administration and law enforcement.
Besides, governments shall strengthen the supervision and cracking-down of the loss of credit according to law. Governments shall crack down on activities that disrupt normal production and life such as making and selling counterfeit goods, loan delinquency, arrears of wages etc., and establish a "blacklist of serious dishonesty" and information sharing mechanism to reduce the cost of safeguarding the rights of enterprises so as to lower the cost of enterprises in safeguarding their own rights.
3. Governments shall deepen the reform of monopoly industries like electric power to reduce the cost of electricity.
Fair competition is not only the essential requirement of market economy, but also the necessary condition for market mechanism to play its role. Industrial monopoly, market blockade and local protectionism have pushed up the transaction cost of market subjects. Therefore, it is urgent to accelerate and deepen the reform of monopolistic industries such as power system, establish the system of national treatment and "negative list," open up freight logistics services such as railways, airlines and freighters in an orderly way, promote the reform of circulation system such as railway and air transportation to concretely reduce the cost of electricity and logistics for enterprises in real economy.
Authors:
Liu Shangxi, Director and Researcher of the Chinese Academy of Fiscal Sciences
Fu Zhihua, Deputy Director and Researcher of Chinese Academy of Fiscal Sciences
Xu Yude, Director and Researcher of Finance and Accounting Research Center, Chinese Academy of Fiscal Sciences
(Translated by Duan Jing)
A single purchase
