Improving Business Environment in China: Practices and Experiences Copyright: United Nations Office for South-South Cooperation (UNOSSC)/ United Nations Development Programme (UNDP) United Nations Development Programme 304 East 45th Street New York, NY 10017 USA Disclaimer The views expressed in this publication are those of the authors and do not neces- sarily represent those of the United Nations, UNOSSC/UNDP or the United Nations Member States. The designations employed and the presentation of materials throughout this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNOSSC/UNDP concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries. Improving Business Environment in China: Practices and Experiences Table of Content Introduction Abbreviations ...............................................6 Acknowledgments ....................................... 7 Executive Summary .....................................8 Page 9 A Brief Evolution Key Experiences Introduction of China’s of China’s to Business Business Practices Environment Environment in Optimizing Improvement the Business Environment Page 10 Page 12 Page 32 Conclusions References ..................................................39 Page 37 6 IMPROVING BUSINESS ENVIRONMENT IN CHINA: PRACTICES AND EXPERIENCES Abbreviations BRI Belt and Road Initiative CICETE China International Centre for Economic and Technical Exchanges CIKD Center for International Knowledge on Development DCED Donor Committee for Enterprise Development DESA Department of Economic and Social Affairs of the United Nations DRC Development Research Center of the State Council, China EGDI E-government Development Index ICT Information and Communication Technology ID Identification Card SCIO State Council Information Office SEZ Special Economic Zone SPC Supreme People’s Court UN United Nations UNDP United Nations Development Programme UNOSSC United Nations Office for South-South Cooperation GLOBAL SOUTH-SOUTH DEVELOPMENT CENTER PROJECT 7 Acknowledgements This research paper was authored by Dr. Zhou Taidong, researcher at the Center for International Knowledge on Development (CIKD). He can be contacted at [email protected]. The author is grateful for the support of the Global South-South Development Centre, espe- cially Ms. Zhang Wei, Ms. Song Bo and Ms. Liu Yang at the China International Center for Economic and Technical Exchanges (CICETE). The author appreciates valuable comments, inputs and suggestions from Dr. Ma Xiaobai, Researcher at the Development Research Centre of State Council (DRC), Mr. Zhao Jinping, Senior Researcher at DRC and Dr. Hany Besada, Senior Research and Programme Advisor, and Dr. Xiaojun Grace Wang, Deputy Director, United Nations Office for South-South Cooperation (UNOSSC). 8 IMPROVING BUSINESS ENVIRONMENT IN CHINA: PRACTICES AND EXPERIENCES Executive Summary Business environment has been recognized as contain- The key findings regarding China’s experience and ing critical elements that affect the performance of implications in optimizing the business environment firms and entrepreneurs and one of the pre-requisites include: for economic growth and poverty reduction in develop- ing and transitioning economies. Improving the busi- 1. attention and leadership of top-level leaders; ness environment has been an important part of China’s 40-year reform and opening up. Since 2013, China has 2. encouragement of local policy experimentation taken business environment optimization as one of the and institutional reform; main means to improve China’s economic competitive- ness through continuously pushing forward nation- 3. strong enforcement of the reform agenda; wide reforms, including further delegating power and streamlining administration, simplifying approval 4. private sector participation and intensive use of procedures and cutting taxes and fees. China’s prog- digital technologies and e-government services; ress, measured by the Ease of Doing Business Project and of the World Bank, has been particularly impressive over the last several years when its ranking jumped 5. working with international organizations and from 96 in 2014 to 31 in 2020. learning from global experience. The objective of this report is to: (i) document China’s business environment improvement in the different Given the increasingly important role of China in inter- stages after the reform and opening up in 1978, with national development cooperation, it is believed special attention to the reforms after 2013; (ii) analyze China’s experiences and practices in improving busi- the key reform policies and measures, as well as the ness environment can not only inform the design and institutional arrangements; and (iii) inform and inspire implementation of business environment strategies other countries, especially the Southern economies in other Southern countries, but also be incorporated that also aspire to improve the business environment. into China’s international development programmes through policy dialogue, knowledge sharing and tech- nical assistance. GLOBAL SOUTH-SOUTH DEVELOPMENT CENTER PROJECT 9 1 Introduction Prevailing business environment constitutes an influ- over the last decade. However, the progress has been ential and important condition in the operation of particularly impressive over the last several years, when enterprises globally. A good business environment China’s ease of doing business ranking jumped from 96 helps accumulate various production factors such as in 2014 to 31 in 2020 (World Bank, 2020a). According to capital, talents, and technology, stimulate the vital- the World Bank (2020a), China was recognized as one ity of various market players, improve the quality and of the top 10 most improved economies worldwide for speed of economic development, and reduce poverty. the ease of doing business for two years in a row and Governments and enterprises of all countries attach the top 10 global reforms in 2019 and 2020, while also great importance to the basic conditions of the busi- on the global forefront in specific areas, such as getting ness environment. By identifying and conceptualizing electricity and contract enforcement. a comprehensive approach that addresses procedural, legal, institutional and regulatory barriers affecting all This report aims to review and analyze China’s efforts phases of investment and business lifecycle, countries in improving the business environment during the can establish a competitive business environment that different stages, with special attention to the reforms can attract, retain, leverage and expand investments for after 2013 when the Chinese government intensively business-led growth and in turn promote broad-based pushed forward focused reforms in optimizing busi- sustainable economic development. ness environment. It intends to unravel and summarize China’s specific practices and experiences in optimiz- Over the past 40 years of reform and opening up, ing the business environment, with a view to providing China has been committed to improving the business references to other Southern economies. The report environment, resulting in attracting a large amount of consists of four parts. Following the introduction, investment, especially foreign investment, and greatly the second section briefly discusses the concept of contributing to China’s economic growth and poverty business environment. The third section documents reduction. Since 2013, China has taken business envi- China’s business environment reform experience after ronment optimization as one of the main means to the reform and opening up in 1978 and analyzes the key improve China’s economic competitiveness through reform measures and the institutional arrangements. continuously pushing forward nationwide reforms, The last section concludes and shares key lessons including further delegating power and streamlining learned from China’s experience. administration, simplifying approval procedures and cutting taxes and fees. Such efforts have led to positive progress and effects in improving the business envi- ronment. According to the indexes of Ease of Doing Business published by the World Bank, China has improved across almost all Doing Business indicators 10 IMPROVING BUSINESS ENVIRONMENT IN CHINA: PRACTICES AND EXPERIENCES 2 A Brief Introduction to Business Environment Business environment has been recognized as contain- and market participants in economic activities” (State ing critical elements that affect the performance of Council, 2019). firms and entrepreneurs and one of the pre-requisites for economic growth and poverty reduction in devel- The business environment constitutes the basis oping and transition countries (White and Fortune, for market entities to survive, develop and innovate. 2015). Different stakeholders have defined the busi- It reflects the many location-specific factors such as ness environment in different ways. In 2008, the Donor taxation, business registration, and access to utilities Committee for Enterprise Development (DCED) defined and energy. These factors shape opportunities and the business environment as “a complex of policy, incentives for firms to invest productively, create jobs legal, institutional, and regulatory conditions that and expand. Reforms in these areas intend to promote govern business activities”, aiming to reduce the costs the development of markets that encourage