Entrepreneurs Multiply : China--The Capitalists Stay Small

DALIAN, China — At the age of 34, Jiang Wei is one of the best-known private businessmen in China.

He has a flair for publicity. His picture is on the cover of the new Chinese magazine Entrepreneur. His voice, carried on government broadcasts, was recently beamed to Taiwan and Southeast Asia, inviting listeners to come see for themselves the new phenomenon of private enterprise in this Communist nation.

Yet Jiang’s much-touted business venture remains barely at the fringe of economic life in China. Five years after he started operations with a small outdoor photo stand at a park in Dalian, Jiang has moved up no further than a tiny storefront shop that is smaller than the average American dry cleaner’s.

Jiang, who is not married, sleeps on a couch in the office behind his shop. He relies for help on a paid staff of nine plus his father, mother and sister. It is, quite literally, a mom-and-pop operation.

Businesses Marginal

Jiang’s cramped shop exemplifies the still-marginal nature of what are known in China as the ge ti hu , or individual entrepreneurs.

Although the revival of private enterprise in China has captured the imagination of the world, little has developed here that would qualify as private business in the common Western understanding of the term. Virtually every enterprise of any magnitude in China is still owned by the state or a collective.

The world of the ge ti hu is still primarily one of small cafes and fruit carts, blue-jeans stands and flower stalls. Chinese who are bold enough to go out on their own sometimes make amounts of money that would have been unimaginable a decade ago. But they often find themselves subject to legal restrictions, harassment, extortion and social discrimination.

Some Face Prejudice

Last year, a leading newspaper in Shanghai reported that private entrepreneurs there, even those with money, were having trouble finding wives or husbands. “The problem is that people are often prejudiced against entrepreneurs,” the paper said.

In the late 1970s, under the leadership of Deng Xiaoping, China decided to permit individuals to set up their own businesses, in part to provide an outlet for unemployed youth in cities like Peking and Shanghai. It was a stunning reversal of policy for a Marxist regime that under Mao Tse-tung had denounced any form of private trade as the “tail of capitalism.”

Now the number of individuals working in private endeavors is growing at an astonishing rate. According to government statistics, more than 17 million Chinese were working last year in individually owned, non-agricultural businesses, an increase of 35% over 1984.

Retail sales by the private sector nearly doubled last year, to an estimated $17 billion, and now make up about an eighth of total retail sales in China.

Nevertheless, Chinese authorities make it plain that they intend to keep the new private sector within carefully circumscribed limits--primarily in the service and retail industries, which the government has found difficult to manage through centralized state planning.

“China takes public ownership as the mainstay of its economy,” Vice Premier Li Peng said not long ago, repeating an oft-stated view of the Deng leadership. “The output value of the individual economy occupies only a small proportion of its entire national economy.”

Private enterprise cannot attract the educated elite of Chinese society. The products of China’s leading universities are still channeled into jobs in government ministries, state-run enterprises or government research institutes.

This tracking system is hardly surprising, since the government assigns college graduates to jobs. The graduates themselves have little or no choice about where they will go.

Most Are Young People

As a result, the ranks of the ge ti hu are filled mainly by young people without college degrees who are unemployed (“waiting for job assignment” is the euphemism used here) or by persons who are bored and dissatisfied with the jobs assigned to them.

Under the freedom allowed to them by economic reforms, some of the entrepreneurs have made enough money to arouse the envy of their friends and neighbors. According to a press estimate, 1,100 families in the private sector earned 10,000 yuan--$3,125--last year. The average annual cash wage for workers and government officials in 1985 was 1,142 yuan, or $357.

The increasing income of the ge ti hu and their lack of political influence make them easy prey for avaricious local officials. Over the past couple of years, numerous examples have come to light of cadres fleecing private entrepreneurs.

In Tianjin, an entrepreneur named Chen Jianguo closed his small restaurant in anger not long ago because city officials in charge of regulating private business had been eating at his restaurant and refusing to pay. Eventually, a vice mayor apologized to Chen, paid him 400 yuan ($125) and promised to punish the freeloaders.

Drained by Extortion

A peasant from the outskirts of Peking named Ma Zhuqiao took the unprecedented action last year of opening a private souvenir shop on Wangfujing street, the main shopping street in downtown Peking. Later, the Communist Party newspaper Economic Daily acknowledged that Ma was almost forced to declare bankruptcy and close his shop “as a result of too much extortion from different city authorities.”

An official of a government tourist agency demanded two souvenir lamps from Ma on grounds that he needed to test their safety. Four other officials threatened to fine Ma for playing music too loud. The fine was waived after Ma treated them to a banquet at a big restaurant.

The barber who was Ma’s landlord demanded that, in addition to his rent, Ma pay 600 yuan a month ($188) to five workmen from the barber shop. One of the five “employees” never appeared for work, three others were often absent, and those who did work demanded extra money whenever they were asked to run errands.

Beyond financial squeezes like these, private entrepreneurs in China find themselves in a continuing battle for respect and social acceptability.

The Shanghai newspaper Liberation Daily, in an attempt to explain why young women do not want to marry private businessmen, said last year: “People think self-employment is too risky, even if the possible income is considerable. They often think some of the money is earned dishonestly. Second, people still consider entrepreneurs to be of low social status. . . . Finally, some self-employed are often poorly educated and rustic in their language and behavior.”

Now, Income Tax

As if all this were not enough, since the beginning of this year the ge ti hu have been confronted with a new burden: a Western-style progressive income tax.

Under interim rules announced by the government, private business must pay taxes at rates ranging from 7% on income under 1,000 yuan ($312) to 60% on income over 30,000 yuan ($9,400).

Many Chinese entrepreneurs choose to keep their earnings at home rather than in the bank. A Shanghai newspaper acknowledged in February that the city’s private businessmen are holding an estimated $44 million in cash at home.

“They are afraid the national policy (that permits private business) will change, and that as soon as it changes, banks will freeze their assets,” the newspaper said. “They are afraid that depositing the money in the bank will show that they are wealthy and that they will be audited.”

Underlying the businessmen’s fears is their awareness of how precarious their position is. They know that the Communist Party is willing to tolerate them only up to a point.

Limits to Development

“An economy based on public ownership of the means of production is the lifeblood of socialism,” the official newspaper Workers’ Daily warned in February. “. . . With some things, the more they develop, the better. With others, like the private sector, if they exceed a certain limit, it can go the other way.”

Jiang Wei, the owner of the photo shop in Dalian, goes to great lengths to cultivate good relations with powerful officials. “Jiang Wei has a lot of friends, both in Dalian and in Peking,” said Liu Zhenyuan, Dalian correspondent for the Liaoning Daily.

Jiang says he has not joined the Communist Party and has no plans to do so. But he has spent considerable time arranging to meet party luminaries at times when photographers are present. The walls of his office are covered with pictures of him alongside leaders like Wang Zhaoguo, a member of the party secretariat in Peking.

Jiang does not have a college education. He joined the People’s Liberation Army at age 18, and started his outdoor photo stand five years ago after he had been demobilized and was waiting for work.

He has had brushes with local harassment. At one point, the licenses of his and several other private photo stands were confiscated on grounds that they were interfering with official business. The official business, apparently, was the state-run photo stores. Eventually, the private shops managed to get their licenses back.

Linked to Hong Kong

Last year, Jiang found a Hong Kong firm willing to invest $200,000 in his business. But when he applied to the authorities in Peking for permission to link up with the Hong Kong company, he was turned down on the grounds that there was no precedent.

But his ties with officials in Peking stood Jiang in good stead. After a series of meetings that went as far as the State Council, or Cabinet, he was finally allowed to enter into a joint venture with the Hong Kong firm--the first venture ever in this country to link a private Chinese entrepreneur with foreign investment.

Now Jiang is expanding. He is about to buy a car to replace his motorcycle. He has been talking of diversifying into photocopying and exporting chopsticks and plastic wares, and he has various other schemes.

Jiang exudes an air of aggressive self-confidence, but occasionally he displays an awareness of the risks he faces in trying to run his own business.

“When I was down in Canton, the hotel I stayed in had its windows locked shut,” he said recently. “I asked why, and the manager told me that several businessmen from Hong Kong had jumped out of windows at the hotel when their businesses failed. Well, I won’t jump. I’m protected by Chinese society.”