In the Chinese economy, there is the term "guo jin min tui", which translates roughly as "state advances, private sector retreats". "Guo jin min tui" is a rather controversial issue, and also a long-standing one, and is closely connected to China's reform and the process of reform. Many people believe that China does not have the problem of "guo jin min tui"; they cite sources and statistics to prove that this issue is a false proposition; the earliest among such people are the leaders from the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) who are dismissive of the "guo jin min tui" issue. Their intention is clear, and indeed, it would be ineffective to engage in discussions with them.

However, the Chinese Vice Premier Liu He is not among them; in his recent speech, he provided analysis on this issue. Liu He's main point is that China's state-owned enterprises and private enterprises have formed a complete industrial chain. State-owned enterprises are mostly in the upstream of the industrial chain, playing a role in the basic and heavy manufacturing industries while private enterprises are increasingly providing manufacturing products, especially final consumer goods; this means that the two are highly complementary, cooperative and mutually supportive. The Chinese economy will continue to improve in this direction and move towards high-quality development, and China should shift from the monolithic thought to using the new modern industrial chain concept to understand the state-owned and private economy.

Unlike those in China who disregard the private economy, Liu He places importance in the private enterprises and the private economy and recognizes that it is a crucial part of the Chinese economy. It is worth noting that Liu He also uses statistics to prove that the private economy plays a vital role in the entire economic system. Private enterprises contribute more than 50% of China's tax revenue, 60% of GDP, 70% of technological innovation, 80% of urban labor employment, 90% of new employment and number of enterprises.

Hence, there is room for discussion on the problems of state-owned and private enterprises, with the possibility of a unified understanding, though whether the issue can be resolved is another matter. To put it simply, while Liu He believes that there is no problem of "guo jin min tui", this is based on the differential development of the industrial sectors.

It should be said that what Liu He had pointed out is actually an "unfortunate reality." When we understand this problem, it would be clearer to put this real situation in the policy environment. As Liu He had said, the industrial sectors in which state-owned enterprises are located is in the upper reaches. If such industrial sectors overlap with the policy reality, one thing will inevitably happen, that is capital and projects will be in the hands of state-owned enterprises, while private enterprises would feel the pressures and challenges. Though in some cases the U.S. President Donald Trump targeted the Chinese national enterprises, in most cases pressures of the U.S. trade and investments would fell on the Chinese private enterprises.

There are three reasons why state-owned enterprises in China enjoy what they are today. The first reason is the integration of the industrial system. Once this task of Premier Zhu Rongji is realized, the state-owned enterprises will be at the upstream and the private enterprises will be at the downstream. When the downstream gets bigger, the upstream would reap the benefits; even if the downstream has collapsed, the upstream could still use the power of the whole country to gather resources, making the state-owned enterprises in an invincible position. The second reason is urbanization, where land could generate money; this is effective ammunition of the state-owned enterprises. China's urbanization not only made the government rich, but it also gave the state-owned enterprises opportunity to regain their dominant position. The third reason is the concentration of resources under the political system. Under the leadership of Premier Wen Jiabao, this task was realized; there were major projects and mega projects in aerospace, aviation, high-speed rail, telecommunications, infrastructure, and others that gave the rise to the state-owned enterprises, while the private enterprises had become the subcontractors of the state-owned enterprises.

Therefore, recently, when Yi Gang, the Governor of the People's Bank of China talked about the issue of "competitive neutrality", I became anxious about them. They are all young governors, and they are all scholars; they should be forgiven for their rashness. In fact, the performance and reflection of Chinese politics in the industrial sectors are that the state-owned enterprises are a "non-market economy sector", and their profit is guaranteed regardless of the situation. Private enterprises, on the other hand, belong to the "super-market economy department", and they are left to grow or perish on their own. I am a new Marxist and like to explain the problem with the Marxist point of view. Within the current state-owned enterprise system, there is a policy-based profit-making department called "state-owned enterprise", which has the same meaning as the "Ministry of Defense". This also means that private enterprises are the only production sector in China, and they are at the production end that faces the global challenges and competition, as well as cost pressures and competes in the market economy. If such structure of state-owned enterprises and private enterprises remains, there will not be "competitive neutrality". Therefore, it is definitely right for state-owned enterprises to become bigger, stronger, and better, while "competitive neutrality" is the opinion of scholars.

In the Chinese economic environment, there are actually two types of industrial sectors in the sense of political economy; these two types of economic departments obviously cannot compete with each other in principle. The first type is to manage people and things, and the other is to engage in commodity production. These two types are quite different, but now they must compete with each other just because they are called "enterprises." In this way, the private economy can only take funds and take projects from state-owned enterprises. Naturally, everything must be based on state-owned enterprises; otherwise, there will be no money, no projects, no resources, no support, no market, and no customers for private enterprises. In the past, some private enterprises were also able to cooperate with foreign capital. Under the "protection" of China's foreign investment policy, there was still profit and development. Now that foreign capital has been pulling out, the customers of private enterprises have also gone, so what choices can private enterprises have in addition to being attached to state-owned enterprises? As long as it is a policy-led plan that costs huge amount of money, it would be hard for private enterprises to appear.

So what is the result of this reliance? In the extreme, it would be the nationalization of private enterprises. Will those private enterprises mix with state-owned enterprises? This is completely impossible, just like the consumers who bought the house would not become the developer. As for the comprehensive nationalization of private enterprises, if it is true, it should be the most pessimistic moment of the Chinese economy. In the end, if state-owned enterprises are really the "mainstay" of the Chinese economy, who will now discuss "guo jin min tui"?

Final analysis conclusion:

It can be concluded that "guo jin min tui" is not a false proposition in China, but a reality. It is just that "guo jin min tui" is not an issue in the arithmetic sense, but a problem in the structural sense. If we look at the future, there will be bigger problems and dangers, where it is likely that there will not be an advancement for state-owned enterprises, yet at the same time, the private enterprises would further regress.