Private companies have the advantage in digital economy

Editor’s note: China’s decision-makers should realize the potential of private enterprises, comments Wu Xiaobo, a columnist, in a post. Excerpts:

The 40 years of reform and opening-up are the history of the private economy in modern China. In 1981, the official discourse termed the market economy as subsidiary to the planned economy. In 1988, the private economy was recognized as “accounting for half the national economy”, and the term “entrepreneur” appeared in the official discourse for the first time. In 1992, China set the goal of establishing a “socialist market economy” for the first time.

Two decades ago, the State-owned enterprises controlled the industrial foundations of the national economy, including electricity, energy, telecommunications and transport. But nowadays, private enterprises dominate the new pillars of the economy — e-commerce, mobile payments, real estate and logistics.

This is not the result of institutional reform but technological innovation.

In the information era, the power to influence the market is no longer in the hands of those distributing resources, but with consumers, and to respond to consumers entails innovating and applying advanced internet technology, which the SOEs are less capable of doing. It is private enterprises that are upstream in the information economy, and they are no longer always supplementary to the SOEs as before.

It is ridiculous therefore for some to claim that the private economy has fulfilled its historical mission.

Private enterprises’ role, with the expansion and development of the emerging industries, will only grow. It is difficult for the SOEs to compete with them in big data, artificial intelligence, biotechnology, new materials and new energy, as none of the SOEs has such comprehensive technological advantages as Alibaba, Tencent or Huawei.

The ongoing technology revolution has therefore created a new arena in which the SOEs cannot compete with private companies. Bearing this bigger picture in mind, decisionmakers should recalibrate their supportive policies to private companies based on an accurate understating of their roles and potential.