Chapter 6 Chapter 4 Is there a problem with China's economic growth model?

China's economic reform is a gradual, unique and grand undertaking with great achievements.Since 1978, China has gradually but firmly said goodbye to the planned economy (the state owns all means of production and determines the prices of most commodities) and turned to the road of a market economy. Today, we have more or less reached the other side. The rapid growth of GDP means that the income of the people continues to increase, the degree of poverty is greatly reduced, and the middle class grows rapidly.However, to achieve all this, the Chinese government does not rely on the principles learned in economics textbooks.The unique “Chinese characteristics” of state-owned enterprises, the dual price system, and the extraordinary scale of state-led infrastructure construction, accompanied by very limited political reforms, have proven to be a Chinese creation that has entered economics textbooks.At the same time, the relative lack of protection of private property rights has not caused major problems. Private enterprises have survived tenaciously despite the difficulty in obtaining formal financing, and they are still alive and well—private financing has replenished their blood.The rise of famous brands such as Lenovo, Haier, Wahaha and Galanz testifies to the success of China's economic reform. The experience of economic development with "Chinese characteristics" is enough to be a sample for many countries to emulate.

If you keep nodding your head in deep agreement when you read the above text, then please read Huang Yasheng's latest masterpiece "Capitalism with Chinese Characteristics" (the English version was published by Cambridge University Press, 2008).In the book, the tenured professor at MIT Sloan School uses figures and examples as the basis to make a loud and convincing voice-you have been misled.This book profoundly and comprehensively questions China's economic growth model in recent years, and is worth reading and discussing carefully.In this chapter, I will review the course of China's economy in the past 30 years along the lines of Huang Yasheng, and in the process, ponder whether his conclusions are accurate.I believe he does not fully appreciate many of the positive aspects of China's development history - but many of his criticisms are very pertinent.

Huang Yasheng's point of view is that the reforms 30 years ago started in the countryside and centered on the countryside.Suddenly, farmers gained the freedom to cultivate their own land and sell agricultural and sideline products in urban farmers' markets for income, which quickly led to an unprecedented prosperity of township enterprises and rural finance (both formal and underground). Between 1984 and 1986, 33 percent of TVEs obtained bank loans in their first year of establishment (the rate declined in the 1990s).This was the golden age of entrepreneurial capitalism, and tens of thousands of farmers rushed to set up their own small businesses with their life savings or loans from financial institutions. In the 1980s, the economy grew rapidly, the poor groups received attention, and social welfare was greatly improved.Huang Yasheng cited Nian Guangjiu as an example. In 1983, this Anhui farmer used a frying spoon to stir-fry "fool melon seeds" all over the country, accumulating huge wealth for a while.Huang Yasheng commented that this is a good model, because it is a real entrepreneurial model.

However, many Western economists have pointed out that most of China's township enterprises are publicly owned.In other words, these enterprises are not family-run enterprises, but enterprises run by village and township governments.However, the great success of township and village enterprises raised a doubt among economists who generally believed that the government could not run enterprises well.This judgment, often made by economists, is not entirely unjustified - although it may eventually lead to an ideological dispute.A large number of examples prove that most public enterprises, especially those run by local governments, usually do not produce good benefits.The reason is simple: bureaucracies tend to use corporate profits for other purposes, business management models are very bureaucratic, innovation is stifled, and they are often overstaffed.Therefore, these Western scholars are puzzled by the vitality of China's township enterprises.This contradiction prompted some western scholars to propose a new theory to explain China's township enterprises.The general idea is that the overall atmosphere in China in the 1980s was not friendly to private enterprises, there was suspicion in the ideological field, the market was in a state of control, and property rights were not protected, which meant that the property of private enterprises might be gone. .It is precisely because the local government protects these enterprises that they can survive, expand investment and grow.

Huang Yasheng did not respond too much to this theory. His rebuttal was simple. "Township" is a geographical category, not a concept of ownership.Most TVEs in China (including all new TVEs set up in the 1980s) were not owned by the state, he said, but were actually privately owned, and all new jobs in the late 1980s came from privately owned TVEs. In 1996, employment in township and village enterprises reached its peak, with 135.1 million people employed in township and village enterprises, of which 75.6 million were employed in private township and village enterprises, and employment growth in collective township and village enterprises was much slower.Huang Yasheng estimated that by 1985, the average output of private township enterprises was 50% to 70% higher than that of collective township enterprises, and their profits and wages were also higher than those of the latter.

Therefore, Huang Yasheng believes that TVEs have no special "Chinese" characteristics, and there is no need for any theory to explain the success of TVEs.The reason for their success is simple - as soon as there is a way to start a business and get rich, people do it.The country's most dynamic area is crowded with township enterprises. For example, in 1987, 4,000 collective township enterprises in Wenzhou were transformed into joint-stock companies through clear property rights, thus transforming into private enterprises.Huang Yasheng believes that the prevalence of such property rights restructuring at that time was higher than many people's previous speculations.Not only in Zhejiang, but also from northeast to central China, a large number of private enterprises have emerged.Huang Yasheng also attacked the state-led economic growth model, saying that the widely praised "Southern Jiangsu model", based on government ownership, never really succeeded.

But how exactly did private enterprise thrive in such an unfriendly environment?It should be very difficult for private enterprises to survive in an environment with a weak legal system, but this was the actual situation in the 1980s.How does Huang Yasheng explain this? Huang Yasheng's answer is that the party's top leadership is on the side of entrepreneurs.The top leadership publicly promised to take measures to promote economic autonomy reforms, openly talked about the road to wealth, met with business people, and sent a message that the policies to revitalize the economy will not be wavered.The change in attitude at the highest level has created enough space for the birth of township enterprises.Suddenly, officials at all levels were keen to support such businesses rather than shut them down, a dramatic shift from the Mao era.To promote the maturity and development of the market economy, a large number of detailed legal provisions and regulatory rules need to be clarified.But for that era, a sentence or two would suffice for the initial burst of private economic life.Once the door of opportunity is opened, people who are full of longing for a happy life in the future will plunge into the business world without any reason.Naturally, the stakes are great.We know that in the early days of reform, the confrontation between conservative forces and reform forces never stopped, especially between 1989 and 1992, tens of thousands of private enterprises were closed.In other words, the system is not immovable.But the most important thing is that the risk of private enterprise in the 1980s was much smaller than before, and that is enough.

Time has entered the 1990s, and it also brings us to understand several key points of Huang Yasheng's worldview.Many analysts believe that the reform continued to move forward after experiencing a short and painful period from 1989 to 1992. In Huang Yasheng's eyes, during this period, China's economic reform experienced a sharp pause, and the growth model of the 1990s was no longer the same. In the last 10 years of "entrepreneurial capitalism", he called it "state-led capitalism".The data at that time were very limited, but Huang Yasheng still tried his best to find out which fields the private enterprises were compressed into in the 1990s, what changes in the number of employees were employed, and what were their financing channels. From 1993 to 2001, the fixed asset investment of private enterprises accounted for 13.3% of the total fixed asset investment of the whole society, while in the period from 1981 to 1989, this ratio was 21.4%.From 1984 to 1986, 33% of private enterprises applied for bank loans in the first year of establishment, while from 1990 to 2001, this rate dropped to 26%. In the early 1990s, private finance in Wenzhou and other places was severely rectified, and rural credit cooperative financial institutions that once provided important support to rural private enterprises were under stricter control.Huang Yasheng pointed out that throughout the 1990s, rural credit cooperatives did not fully recover.Conversely, commercial banks in rural areas have been restructured to serve agriculture rather than rural enterprises.The shrinking living space of private enterprises means that at that time most industries were still dominated by state-owned enterprises; according to Huang Yasheng’s estimation, the real scale of private enterprises only accounted for 22% of the total industrial scale from 1993 to 2001, far lower than many scholars estimated 50%. In the 1990s, China's economic growth was transformed into a city-centered, led by infrastructure investment.The growth of household income in Chinese society has also changed. In the 1980s, the income of rural households grew faster, but in the 1990s it was overtaken by urban households. In the 1990s, private companies suddenly had no access to credit, which meant they had to turn to underground financing markets.Underground financing brings growth opportunities for private companies, but it is expensive and on a smaller scale compared with credit in the formal banking system.Many private owners who have the potential to grow into peasant entrepreneurs have no choice but to pack their bags, leave their hometowns and flock to cities, construction sites and other corners, becoming migrant workers.

Huang Yasheng pointed out that in the 1990s, social resources flowed to state-owned enterprises, while private enterprises were eliminated.Incentives to attract foreign investment are in stark contrast to what many local companies face—foreign-invested companies enjoy tax breaks, better legal protections, and a host of other benefits.Many Chinese companies turned to actively seek foreign investment, and some people came up with the idea of ​​saving the country with curves: get the funds out, take a stroll in Hong Kong, Cayman and other places, and then return home as a foreign investment (the so-called "return investment" ), to enjoy the benefits of being a foreign investor.During this period, the ranks of the government expanded rapidly, with the number of civil servants increasing from 20 million in the 1990s to 46 million in 2004.The tax base continues to grow, which is somewhat positive, as central government revenues had slipped dangerously in the early 1990s.This situation was changed in 1994. With the reform of the tax sharing system that year, the national tax revenue began to increase; moreover, the local government realized the continuous enrichment of government financial resources through land sales.The new wealth pouring into government coffers has been spilled neatly.As a result, people in the capital have seen the National Grand Theater with a special shape and a cost of up to 800 million U.S. dollars; people in Shanghai can take the maglev train built at a cost of 1.2 billion U.S. dollars from the airport to the subway station in the suburbs; You will find that the government buildings above the former farmland are imposing.In a word, the state firmly controls the economy, resources are concentrated in cities, and for the countryside, there is no source of wealth creation (private enterprises) and no social security system.

Huang Yasheng compared the obvious changes in household income in the 1990s. In the 1980s, the income of rural households grew faster, but in the 1990s it was overtaken by urban households.Why is that?The income of migrant workers working in cities is much lower than the wages paid by township and village enterprises.According to Huang Yasheng, the problems in the 1990s were that township and village enterprises were strictly controlled, employment growth was suppressed, income inequality increased and literacy rates declined. Some problems resurfaced in the 1990s after a marked improvement in the 1980s.Huang Yasheng gave an example. The literacy rate made great progress in the 1980s, but it has reversed since the 21st century.Official figures show that in 2005, 11 percent of the population over the age of 15 was illiterate (114 million people), up from 6.7 percent in 2000. In 2000, the number of teenagers aged 10 to 14 receiving basic education decreased by one-third.Huang Yasheng believes that although the official enrollment rate looks good, it does not take into account the number of children who drop out of school.In the era of soaring tuition and miscellaneous fees, dropouts in poor rural areas are very common. In 2000, official data showed that the enrollment rate of junior high schools in rural areas was only 50% to 64%, which was much lower than the enrollment rate of 72% to 80% in urban areas.

Another consequence of the transformation of the economic growth model in the 1990s was the transformation of the industrial property rights system.The state-owned sector is advancing vigorously, while the private sector is retreating steadily. According to a survey conducted between 2000 and 2001, 80% of Chinese private companies reported encountering financing obstacles, while the rate in India was 52% during the same period.Many industries are still dominated by state-owned enterprises or state-controlled companies.Remember the few successful Chinese companies mentioned earlier?Well, Huang Yasheng tells you that none of them are really "domestic-funded" enterprises, all of them are foreign-invested enterprises.They benefit from (and thus survive) the legal and financing environment in Hong Kong or other territories.Of course, their main market is in China, but they have no choice but to register in Hong Kong or other places due to the lack of good ownership protection and financing channels in China. This finding is completely different from the view that China's industrial economy has been basically privatized in the past 30 years. OECD (OECD) economists Sean Dougherty and Richard Herd are prominent representatives of the latter view. "Fast Falling Barriers and Growing Concentration: The Emergence of a Private Economy in China", 2005, OECD Working Paper, they studied about 150,000 large industrial enterprises covered by the National Bureau of Statistics Industrial Enterprise Database data, and divided the samples into different ownership Type classification.They classify state-controlled companies with more than 50 percent state-owned shares as "directly state" enterprises, those with less than 50 percent state-owned shares as "indirectly state" enterprises, and all other enterprises as "directly state" enterprises. A "private" enterprise.According to their estimates, in 2005, the industrial added value created by Chinese-funded private enterprises accounted for 50.5% of the industrial added value of all enterprises above designated size that year, and the industrial added value created by foreign-funded enterprises accounted for 20.7%.According to their research, private enterprises play a dominant role in China's industrialization landscape. However, Huang Yasheng pointed out that this method of dividing the nature of corporate ownership is problematic.He pointed out that from the level of the industrial enterprise database of the National Bureau of Statistics, it is not possible to find out all de facto state-owned enterprises.Many corporatized companies are controlled by state-owned holding companies that have also been restructured.So while these companies may not be state-controlled companies, search two levels up the ownership chain and you will find that the owner is the state.This situation is very common.Yasheng Huang reanalyzed these samples and made a stricter definition of private ownership.He defined enterprises with more than 50% privately held shares as private enterprises. He found that in 2005, Chinese-funded private enterprises contributed only 22% to industrial added value, and the contribution of foreign-funded enterprises to industrial added value was 50.8%. .That is to say, despite the great development of the private sector, especially between 2001 and 2005, the Chinese economy was still dominated by the state-owned economy. In the bright night of Shanghai, seeing successful entrepreneurs worth hundreds of millions, I thought this economy was the same as theirs, dominated by the private economy and driven by the same factors. We continue to look at the valuable content of Doherty and Holder's analysis.Their main research method is to compare the labor productivity and profitability of enterprises of various ownership types.Although there are mixed voices about their findings, their research is still important and makes interesting discoveries.They find that the more "private" the firm, the more productive and generally more profitable it is.This finding is more or less relevant to the problem of classifying firms by ownership.For example, the productivity of state-owned indirectly controlled enterprises is twice that of state-owned directly controlled enterprises, and the labor productivity growth rate of real private enterprises is 5% higher than that of state-owned enterprises.These findings challenge the notion that SOEs can perform as well as private firms.Of course, corporatized state-owned enterprises do perform better than non-corporatized state-owned enterprises-this is obvious to many people, but they still lag behind private enterprises.This does not mean that the private sector is a perfect model of capitalism, obviously not - such enterprises can also be in a very bad situation, and even have problems surviving, often stealing other people's technology and violating the rights and interests of investors.But in general, the drive that drives private enterprise—earning a profit—seems to drive private firms to be slightly better at value creation than state-owned firms, which are driven by other motives. Okay, let’s go back to Huang Yasheng’s views on the adjustment of China’s economic model in the 1990s.What caused the great transformation of China's economic growth model in the 1990s?Huang Yasheng admits that he is not very clear about the reason.But he cited personnel changes at the top leadership level. The leaders in the 1980s devoted considerable enthusiasm to rural reform. Many of them had experience in grassroots life and felt the severe damage to the rural economy.In contrast, leaders in the 1990s were more familiar with and favored the socialist Shanghai model, which was somewhat distant from the countryside. How should we view the story told by Huang Yasheng?First, we would like to pay tribute to him for making his views clear and based on empirical research.His narration is based on figures and examples, coherent, clear and powerful, which is very valuable.His point of view is in stark contrast to many who tend to evaluate China's reforms in a vaguely "gradual" way, that is, step by step.However, I have different views on some of Huang Yasheng's perspectives and conclusions. There are loopholes in Huang Yasheng's point of view.Sometimes he seems to believe that the whole world has been fooled by Wall Street bankers, and that the dazzling GDP and the magnificent skyline of Shanghai obscure the complete reality in their mouths.He cites the views of some experts, but these experts obviously do not have a good understanding of what happened in China.In fact, many of the problems he lists have already been studied and are not new.Next, I would like to briefly list the research work done by many Chinese and foreign economists on the underdeveloped aspects of China's economy in recent years. Research by Nicholas Lardy, an expert on China at the Peterson Institute for International Economics in Washington, USA, found that in the 1990s, private companies were excluded from formal financing.Now he and many scholars are concerned about the excessive investment behavior led by the government. China's Unfinished Economic Revolution, 1998, Louis Kuijs, an economist at the World Bank in Beijing, analyzed how a large amount of savings flowed into infrastructure projects and heavy industries under improper policy incentives.We will introduce his research in Chapter 7.Lily Tsai, a professor of political science at the Massachusetts Institute of Technology, and other researchers cite the stagnation of infrastructure and social protection in rural areas in the 1990s.Her research is detailed in chapter six.Justin Yifu Lin, the current chief economist of the World Bank, rose to fame with his research on the decline of the rural economy in the 1990s.Economists such as Carl Riskin and Wang Xiaolu have explored the widening income gap in depth.We will discuss this topic in Chapter Five. Inequality and Povertyin China in the Age of Globalisation, 2001, Minxin Pei, a political scientist at the Carnegie Institution of the United States, analyzed and summarized the huge resistance to reform inherent in China's original system. China's Trapped Transition, 2008, a book written by two Chinese journalists, Chen Guidi and Wu Chuntao, described the shockingly poor life of the rural bottom in the 1990s."The China Price" by Alex Harney investigates the living conditions of migrant workers in Shenzhen and Dongguan. Milton Friedman, who once admired the emergence of small businesses in China in the 1980s, shook his head and sighed in front of the newly emerging Shanghai financial center Lujiazui when he revisited China in the early 1990s.Professor Friedman obviously admired Deng Xiaoping greatly. The contribution of Huang Yasheng is also indispensable. In his previous book "Foreign Direct Investment in the Reform Era" (Selling China), he proposed that the trend of foreign direct investment is the result of the constraints on domestic private enterprise financing.Entrepreneurs in China have had to sell themselves to foreign investors in order to survive, obtain funds for expansion, or benefit from preferential policies that have been opened to foreign-invested enterprises.Huang Yasheng believes that the large stock of foreign direct investment is a symptom of economic failure, not a sign of strength. One problem with Huang Yasheng's book is that his criticism of the problems with economic policy in the 1990s seems to have gone too far.He did not mention the positive development of the Chinese economy at this stage.Although at a slower rate than urban households, rural household incomes continued to grow in the 1990s, enviing many emerging economies.Of course, this does not mean that China's rural areas were well developed in the 1990s, obviously not.If the data is credible, the problems in rural areas are more due to the excessive non-tax fees and apportionments of farmers at the grassroots level, as well as the incompleteness of rural education, medical care and infrastructure. The book also completely ignores the SOE reforms of the 1990s.During these 10 years, tens of thousands of small SOEs went bankrupt, some outright, and some through management buyouts.Towards the end of the 1990s, large state-owned enterprises underwent restructuring, and millions of people lost their jobs. This was an extremely painful but necessary process.Many loss-making businesses closed, subsidies were reduced, and the massive destruction and waste of wealth ended.These are beneficial developments that have helped to nurture and grow the market, although there has been a lot of corruption along the way.At the same time, large state-owned enterprises with profitability can be retained and later assigned to a certain department.But these state-owned enterprises have been reorganized, many of them into companies, and the degree of commercialization has been improved.These reforms are certainly not perfect, and these SOEs still dominate many industries.But it is also important to recognize the progress made, as a result of SOE reforms, which saw strong labor productivity growth in SOEs in the 1990s. Also not mentioned in Huang Yasheng's book is China's accession to the WTO.Joining the WTO has brought about the reduction of trade barriers, and at the same time, China's economy has opened up to the outside world in some new areas.These changes are now bringing some benefits to foreign-owned companies in China -- a favoritism that, in Huang's view, has become a problem.But at the same time, joining the WTO also opened up the permanent platform of the global economy for Chinese exporters—a sector dominated by the private sector.The new rules introduced by WTO accession also generally benefit private and foreign-invested enterprises.In the eyes of most economists, this is a positive development - strangely forgotten by Yasheng Huang. Another major reform that succeeded in the 1990s was the prohibition of the military from doing business.Many developing countries have weakened economies due to the military's deep involvement in the economy.Usually, military infiltration into the economy will hinder the formation of good institutions, lead to unfair competition, and also weaken the military itself-the army busy making money has no time to worry about national defense.This reform is positive. There was also a great deal of nation-building in the 1990s.Nation building is necessary and beneficial in many ways.The tax-sharing system reform started by Premier Zhu Rongji in 1994 saved the country's finances from the brink of bankruptcy, and established the Central Bank as one of the regulators of the financial market; successively promulgated the "Company Law of the People's Republic of China" and "Commercial Bank Law of the People's Republic of China" and a host of other laws and regulations.This ended the disregard of the central government by local governments, which was common in the 1980s and early 1990s.Of course, localities still interpret central orders differently, and sometimes have poor implementation of policies such as taxes (especially with regard to real estate) that they don't like.But compared with 20 years ago, local power is much weaker. In terms of rural policies, many people now attribute the current rural problems in China to the policies of the 1990s, and attribute the progress of the rural economy to the results of policy corrections after 2002.However, positive reforms in the countryside began in the late 1990s, when Zhu Rongji launched rural tax and fee reforms to reduce the burden on farmers.From the perspective of medical and health data, in the 1990s, the rural areas did not continue to slide into poverty for a long time.The neonatal mortality rate decreased during these 10 years. In 1991, there were 50.2 deaths per 1,000 newborns. By 2007, the neonatal mortality rate was reduced to 1.53%.Maternal mortality has declined steadily, from 94.7 deaths per 1,000 births in 1990 to 36.6 in 2007.The situation of tuberculosis infection is still very serious, especially in rural areas, where 80% of the 1.3 million new cases of tuberculosis infection each year are in rural areas.In the "Report on the Progress of China's Implementation of the Millennium Development Goals" jointly released by the United Nations and the Chinese Ministry of Foreign Affairs in September 2008, the literacy rate data is better than the data cited by Huang Yasheng - the literacy rate of the population aged 15 to 24 increased from 94% in 1990 rose to 99% in 2005. In conclusion, the 90s did bring some positive reforms.Yasheng Huang is undoubtedly correct in not accepting the "progressive" version of the story.But his "one step forward, two steps back" view is also problematic.Moving forward, we must not only fully recognize the achievements of economic construction in the 1990s, but also recognize the mistakes we made. The third part of Huang Yasheng's story began in 2003 when a new leader came to power.Many of the new leadership have experience working in poverty-stricken areas.Huang Yasheng wrote: "The policy blueprint promulgated by the 17th National Congress of the Communist Party of China in October 2007 is perhaps the most liberal and progressive in China since the 13th century." It has also entered the agenda of the central government; policy shifts to focus on people's livelihood and building a harmonious society.Huang Yasheng believes that this new direction is a welcome change. But from this we would like to raise several questions, the first is the implementation of the policy.To what extent can reforms in environmental protection and people's livelihood security, which are the focus of new policies, be implemented?There has been progress in health care, and there has been a lot of investment in rural infrastructure, but how much improvement have we made in terms of environmental protection and energy conservation?Businesses in some cities on the eastern seaboard say that environmental protection officials are strict in enforcing the law and have the right to close your doors.However, you don't have to go far inland, and companies there will tell you that environmental protection regulations are still loose, and companies that violate the regulations will not be shut down, and you will be fine if you pay a fine.In terms of energy saving, some inefficient and polluting coal-fired power plants have been shut down, but localities across the country still strongly hope to retain local steel, copper and aluminum production enterprises, which consume a lot of electricity.In fact, industry consumes two-thirds of China's electricity generation; households in developed countries consume more than two-thirds.Changing the proportion of electricity used by enterprises and households will be of great benefit to improving energy efficiency, but we still haven't really walked down the old path of high energy consumption. The second issue is the reform model.How will the economic reform be carried out? The approach in the 1980s was to open the door to provide space for farmers and entrepreneurs to venture freely.This is the source of economic growth.If Huang Yasheng's statement is to be believed, the country's economic strength in the 1990s was strong, and along with it, a large number of private sector economic activities were suppressed. Has this situation changed since the 21st century?I'm not sure there's been a noticeable shift, at least not yet.In my opinion, there always seems to be a struggle in the mentality of the top management, wanting to open up and worrying about the unmanageable consequences of opening up.Take the financing difficulties of small and medium-sized enterprises, one of the persistent diseases of the Chinese economy, as an example.The central government loudly encouraged banks to lend to small and medium-sized enterprises, and sometimes even issued lending orders, but commercial banks were unmoved.Why?Part of the reason is that, due to a variety of factors, large banks are generally not good at doing small loans.This is a common problem faced by the whole world.Therefore, the solution is to be done by small banks.As we will discuss in Chapter 6, the Chinese government has begun experimenting in this area, allowing the establishment of village banks and microfinance companies.Many people sincerely hope to improve the distressed financing situation in rural areas and SMEs.But the impact of these reforms has been limited so far because regulations remain tight.Interest rates are controlled, the number of shareholders and their stakes are controlled, and financing methods are controlled, and regulations still prohibit farmers from taking their land as collateral, the only asset most smallholders have.Therefore, one of the reasons for the lack of financing channels for SMEs in China today is regulation.The reason why the regulation is tight is that regulators worry that if this area is liberalized, it will lead to soaring interest rates and misuse of funds.Moreover, when the government supports a certain industry in the economy, the first choice is often to set up a special investment fund, rather than reducing or exempting taxes, eliminating administrative obstacles, or establishing an appropriate intellectual property protection system.The government is trying to do more to help the main body of economic activities, but many economists believe that judging from what the government has done, maybe the government will do more to help. A third question is how difficult it will be for China today to actually advance a pro-market reform agenda.Everyone knows that bureaucracy is an obstacle to reform.The huge bureaucracy makes it even more difficult to make money.Railway reform has been discussed for many years, but there is still no progress in the separation of railway construction, operation and management.If the railway reform cannot be carried forward smoothly, it means that domestic cargo transportation, especially coal railway transportation, will still face great difficulties.Another example is that the annual profits of state-owned enterprises turned over to the state treasury account for only 5% or 10% of their net profits, but since they are owned by the whole people, it is reasonable to turn over all dividends (not a small part) to the state treasury to improve people's livelihood expenditure.However, it is very difficult to promote the reform of central enterprises paying dividends. The reason is very clear. Central enterprises are willing to hold the money in their hands for expanding investment. The managers of central enterprises are also very satisfied with this status quo. Huang Yasheng believes that "governance reform" is the only way to truly break this vicious circle.Some rigorous domestic scholars have also made similar calls, such as Wu Jinglian, a famous economist and government economic policy think tank.I agree with them—as do many government officials, business people, and media people with whom I have spoken over the years.It seems to be the belief of many that governance reform will happen at some point.This concept also often appears at the end of academic papers, speeches or newspaper articles, but it is usually a few words, and few people put forward detailed ideas for governance reform in depth.Of course, figuring it out and putting it into practice is extremely difficult.Governance reform, in whatever form it takes, does not happen easily.