State departments and local governments recently issued measures to alleviate problems facing private businesses. These measures are aiming to improve the market environment in which they operate. In addition, long-term mechanisms should be put in place to sustain market vitality.

History shows that private companies can survive in difficult and diverse conditions. What private enterprises need most is a fair market environment.

Four decades after the reform and opening up was launched in 1978, private enterprises have become an important part of the Chinese economy, contributing 50 percent of tax revenues, 60 percent of GDP, 70 percent of technology innovation, 80 percent of urban employment and 90 percent of total enterprises. But they are now encountering some business difficulties in market access, financing and transformation.

Problems were caused for various reasons, but in an environment of fair competition, private enterprises will be courageous enough to surmount difficulties and seek development. In the Internet sector, a number of private businesses have become "unicorns," or private start-up companies valued at over $1 billion. For many, rules of fair competition will be more important than temporary supporting measures. Policies may satisfy needs, but they will not be a permanent solution to development. Survival of the fittest in a market environment of fair competition is the real essence of maintaining market vitality.

The government must uphold the principle of competitive neutrality to try and maintain fair competition. According to the United Nations Conference on Trade and Development, competitive neutrality means that state-owned and private businesses compete on a level playing field. This principle aims to protect the process and maintain competition.

The essence of solving business difficulties of some private enterprises is to, through the principle of competitive neutrality, ultimately realize fair competition in the market.

First, fair competition rules concerning market access should be established. Such rules will enable businesses of various types to compete in the same market environment so that the fittest will survive. If the government sets limits on market access to bring a competitive advantage to state-affiliated companies, it will damage the growth of private enterprises and impede innovation.

Second, fair competition rules concerning financial access should be established. Funding difficulties and high financing costs for small and medium-sized enterprises (SMEs) are challenges around the world. For SMEs, access conditions and fair competition are the most important. To help SMEs overcome financing hurdles, financial institutions should enhance their credit operation capabilities.

The principle of competitive neutrality must be upheld in the process of credit operations, which means universal credit approval standards should be applied to all market players applying for credit. As long as risk evaluations adhere to the financial requirements, institutions should provide support.

Third, fair competition rules concerning market transformation should be established. The goal of market transformation is to realize the survival of the fittest, and under fair competition, survival of the fittest also means that the defeated have to be eliminated from the market, and "zombie companies" must be completely eradicated.

Fair competition is the key to encourage entrepreneurship, stimulate vitality of market players and inspire technology innovation. While actively supporting the development of private businesses, both departments of the Central Government and various local governments must create a market environment for fair competition and uphold the principle of competitive neutrality so that private business can better realize innovation and development.

This is an edited excerpt of an article written by economic commentator Chen Tao and published in Economic Information Daily

Copyedited by Craig Crowther

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