Chinese debate some capitalistic issues

Scott Tong Mar 5, 2007

Chinese debate some capitalistic issues

Scott Tong Mar 5, 2007

KAI RYSSDAL: We’ve told you more than once on the program about China’s breath-taking economic growth. And how the government in Beijing seems to like capitalism just fine, thanks. Which might raise the question of where all the socialists have gone.

Well, they’re still around, and they were making waves on the first day of the yearly meeting of the Chinese parliament today in Beijing. But Marketplace’s Scott Tong reports most eyes are on a few other pressing business matters.

SCOTT TONG: The National People’s Congress tends to be an annual, choreographed event — a bit like rubber-stamping. But occasionally, debates do break out.

Two main proposals are expected to pass this session. First, a plan to enshrine the right of private property. Proponents think it’s just a natural step along the free-market road. But a group of hardcore leftists claims that it “castrates the spirit of the constitution.”

WILLIAM HESS: They use the phrase of China changing its color — the color being red.

Economist William Hess is with the forecasting firm Global Insight.

HESS: There’s a lot of resentment towards the way that this privatization has taken place. In many cases, the transactions have been very opaque. You know, a big, state-owned factory may have been transferred to some well-connected individuals at a very . . . at a fire-sale price.

The leftists will lose this battle, but it’s part of what Hess considers a larger debate over wealth, corruption and privilege in China.

The issue of privilege is at the center of the second debate, too. A plan to take away special tax breaks for foreign companies. Right now, they pay a rate of 15 percent, versus 33 percent for local firms.

Arthur Kroeber of the consulting firm Dragonomics says China started giving this special treatment in the 1980s.

ARTHUR KROEBER: It’s a way of enticing foreign investors into what was perceived at that time as a very hostile environment. Because China was just emerging from its communist past.

Today, though, China will soon pass Germany as the world’s number three economy, and Kroeber says the tax break has outlived its usefulness.

But Lester Ross of the American Chamber of Commerce disagrees.

LESTER ROSS: Many Chinese domestic companies actually don’t pay at the full tax rate. Or if they do pay at the full tax rate, they don’t report all of their income.

Perhaps a decent argument. But at this session, likely a losing one.

In Beijing, I’m Scott Tong for Marketplace.

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