Beijing receives criticism for market intervention

GUANGZHOU, China ( Caixin Online) � Scholars and company heads attending an economic forum on March 25 blamed excessive government involvement in economic affairs for structural problems in the world�s second-largest economy.

China�s economy is retreating to a crude growth model due to government market intervention and price controls, producing rent-seeking and corruption, said Wu Jinglian, a senior researcher at the State Council�s Development and Research Center. He was speaking at the Lingnan Forum sponsored by Sun Yat-Sen University�s Lingnan College and Caixin.

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State-owned enterprises still have a heavy presence in the economy, which prevents the market from functioning effectively, Wu said.

Since 2003, China has made massive investments in capital-intensive industries to power economic growth, leading to problems like depletion of natural resources, damage to the environment and rising inflation following monetary oversupply, Wu said. As a result, consumer power remains weak due to slow income growth, he said.

Reform in China has entered a critical point and has met with resistance from officials whose power and interests have been infringed upon, the economist said. But fresh momentum for reform may come about when the government completes its leadership changes in 2013, Wu said.

�What the government can do is to meddle less,� Xu Xiaonian, a professor of China Europe International Business School, said. His remark drew applause at the forum.

Innovation is not encouraged under China�s current financial system, which is backed by state-owned banks and insurance companies, Xu said.

Government agencies are vying for regulatory power over private equity funds and angel funds, which will get approved if they secure connections with government officials, Xu said, adding that such a system is throttling innovative enterprises and industries.

Yao Liangsong, chairman of privately held cabinet manufacturer Oppein Group, said he had recently toured Wenzhou, in coastal Zhejiang Province, a hotbed for private entrepreneurship. The closure of local businesses and flight of company bosses to evade debts have made headlines in recent months. But Yao said the root of the problem was thin profit margins.

Chinese private companies can easily run into the red under the dual impacts of rising operating costs, such as rises in energy and land prices, and increasing heavy tax burdens, Yao said.

To survive, private firms must move up the value chain, he said. Yao called for the government to create a fair and transparent environment for competition between state and private companies.

Read this report on Caixin Online.