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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (1471)	11/16/2003 7:13:15 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China’s missing mid-sector Growth in China’s private sector has just begun, and only when it enjoys legal protection will it bloom, says Matei Mihalca Published : November 17, 2003 Hong Kong: Only very few domestic Chinese companies have meaningful size, but the emergence of a corporate mid-tier is necessary if China’s economy is to move to a new stage of development. As it stands today, China’s corporate landscape is polarised between a few very large state-owned groups and a myriad of small, private companies. Many of the former are in north China, many of the latter are in the south and coastal provinces. In many ways, China is a tale of two economies, where size, ownership, and geography match almost perfectly. What’s largely missing in China is the equivalent of Germany’s famed Mittelstand. In China, such a group would comprise companies with revenues between a hundred million and five hundred million US dollars. Companies with revenues in the tens of millions of dollars are generally considered small elsewhere, but they are big in China. Why are large companies important? Large companies are good since scale itself matters. Scale is a prerequisite for innovation. If China is to develop its own brands and intellectual property, success will come from a changed corporate landscape, one populated by large-sized private companies. This has been the path of Western economies, where market concentration has grown over time. The issue in China is that the large companies are typically state-owned incumbents, not enterprises that have reached the top through hard work. To be sure, anti-trust measures are needed to prevent abuse of market concentration, and China is preemptively taking steps to introduce such legislation, but market concentration is generally a good thing. Fragmentation isn’t. Some express surprise at the absence of a mid-tier segment in China’s economy. They suspect market definition obfuscates the truth and, certainly, market definition is a critical and complex issue. But irrespective of technicalities, many believe as a matter of faith that China is large enough to support such companies. After all, reforms began in 1978, a quarter of a century ago. Yet this is misleading. Most private companies are the result of only a decade or so of entrepreneurial activity. A more meaningful date for China’s private sector is not 1978, when a Communist Party conference initiated reform after the Cultural Revolution, but 1992, when Deng Xiaoping visited Southern China and inaugurated a new stage of capitalistic development. And this was only eleven years ago — not enough time for most private companies to reach significant size. business-standard.com