Corporate registration reform is just the beginning of deregulation
Recently, the State Council is promoting the reforms of company registration system, aiming to make market access easier and stimulating more private investment. The reform will lift the minimum registered capital requirements, for example, the minimum registration capital of 30 thousand RMB to start a limited company will be removed, so will the 100 thousand RMB requirement for an individual company and the 5 million yuan for an incorporated company. Besides, the reform also includes other measures as scrapping the deadline of paid-up funding etc.
The measurement on the registration difficulty for start-up companies has always been regarded as an important index of the economic freedom of a country. In 2000, four U.S. economists published a paper about access regulation. They analyzed the costs for starting a business through collecting the procedures that are needed for establishing a common enterprise in 85 countries in the world. The study finds that a start-up usually has to go through 10 bureaucratic procedures, and spends 63 days and the expense equivalent to 1/3 of the annual per income. In some countries, the restrictions are extremely serious, for example, in Bolivia, there are 20 procedures and 2.6 times annual per capital income that are needed. This research stated that severe market access barriers would make the country with more corruption and more informal economy, while not providing private goods or public goods with better quality.
Also in this sense, the lowering of the access thresholds for enterprises in most cases can improve the investment vitality and spur intellectual capitals. When we discuss why there are vitalities for the U.S., a noun that is often mentioned is “starting a business in a garage.” In the U.S., many current very influential companies all once utilized very little funds to start a business in garages, and Google, HP, Apple and Amazon are all the models among them. If these entrepreneurs started up in Bolivia, it could be estimated that there would be no these great companies now. Just due to the easy access for starting a business in the U.S., it’s possible for the establishment and development of these companies so that people all over the world may enjoy their great products or services.
However, lifting the minimum registered capital requirements is only the beginning for making easier market access, and more supporting measures also be needed.
Just as what have been pointed out before, many enterprises in the U.S. may start a business in garages, why for China’s enterprises, people have to go to work in office buildings with the commercial nature? If in the age of manufacturing industry, the differences of commercial buildings and residential buildings had to be considered, because people went to work in their companies in residential areas and would influence the life of their neighbors, but in the age of the Internet, many activities of companies are carried out by the Internet in the early stage of starting a business, so the life of other people will not be influenced that much. In real life, the office work of many enterprises are carried out in residential areas, therefore such regulation actually support the demand to commercial buildings and encourage officials’ rent-seeking. So the regulation for the sites for business operation is still needed to loosen in the future.
Besides, in many science parks in China, the subsidies and preferential policies given by the government to enterprises often are linked up with the registered capitals of companies. As a result, the subsidies will finally flow to the companies that only have huge registered capitals. Taking the technological innovation fund for small and medium-sized technology-based enterprises as an example, if an enterprise applies for “the necessary subsidies for technological innovation products in the stages of research, development and pilot scale tests,” the minimum registered paid-up capital shall not be less than 300,000 yuan. If the government on the one hand relaxes the limitations for the minimum registered capital for enterprises, but on the other hand provides subsidies for those companies that have special registered capitals with fiscal funds, then the phenomenon that many companies specially take the cheating for fiscal subsidies as a tool for earning a living will very likely appear, and those companies that need fiscal supports most are unable to gain the subsidies.
Therefore, in order to encourage more start-ups in China, the feasible way is to reduce the administrative access barriers and government intervention as possible, removing the fiscal subsidies by the government on innovative businesses - the best method is to let enterprises gain funds through the market, because the maximum awards to the winners of market competition come from the payments of users, not from governmental fiscal subsidies.
In this sense, the reform on company registration system is just the beginning of deregulation, and in the future, there is still a lot of work to do.
Originally published on China Times | 2013-10-31
