Cut government subsidies for enterprises

The government should reduce its interference with the economy and business operations to let the market play a bigger role, says an article in China Business News. Excerpts:

The China National Petrol Corporation and China Petrochemical Group, two large State-owned monopolies, have received more than 100 billion yuan ($16.4 billion) government subsidies of various forms over the past 10 years, it was reported.

As the central government vows to let the market play decisive roles in allocating resources, it should reflect on the rationality of subsidizing the listed monopoly enterprises.

The main logic behind government subsidies for SOEs is that these enterprises undertake some responsibilities for the public and the country, or the government needs to direct more resources to those fields to better serve the country’s needs.

However, government officials usually pay more attention to short-term economic growth than the industries’ real long-term needs in the fast changing market environment.

Serious overcapacity in the photovoltaic sector was a negative result of such government intentional promotion, in forms of subsidies and preferential policies in land and taxes.

Government subsidies obviously harm the fairness of the market, do not benefit the healthy development of enterprises and lower the expenditure efficiency of government funds.

To normalize relations between the government and businesses, the government must cut its interference with the economy and improve the transparency of its spending.