China's Communist Party Orders Itself to Get Out of Businesses

China's ruling Communist Party ordered itself out of business enterprises today, four months after telling the nation's army to sever all ties with its far-flung business empire of dance halls and pharmaceutical companies, the state-run media announced.

The Communist Party and state bureaucracies such as ministries must relinquish control of their enterprises beginning next year, the China Daily Business Weekly reported. Finance and investment companies will be administered temporarily by the Ministry of Finance and the central bank. Small enterprises will be taken over by local industrial authorities, the newspaper said.

More than 500 of the largest enterprises will be supervised by a newly established committee under the State Council, China's cabinet, it reported.

The move is intended to reduce corruption and conflicts of interest and to increase the power of market forces in China's economy. As it stands, Communist Party and government officials routinely run companies in the industries they regulate, granting themselves the best government contracts and writing rules that benefit their firms. Such enterprises use their "unique privileges" to give themselves loans and tax breaks, the newspaper said.

Market reformers hailed the new policy. "If the government runs businesses, it of course treats them differently than others. It gives them advantages," said Wang Zeke, an economist at Zhongshan University in the southern city of Guangzhou. Without such reforms "there's no fairness," he said.

The new rules are part of Premier Zhu Rongji's effort to make the government smaller and more effective.

Zhu wants the government to emphasize administration, not production, and has spearheaded an effort to turn ailing state-owned enterprises into stockholding companies which, while not private, are driven more by profit motives than government edicts.

Today's announcement also indicates the influence of President Jiang Zemin's call last July for the military to sell its enterprises.

Jiang has pushed for severing its businesses as a way to turn the army into a professional force and maintain civilian control. He has promised the military tax revenues to replace lost profits.

In a rare acknowledgment of internal strife, the China Daily reported that "pressure from the military over being deprived of its vast business interests" was a factor in the party's decision to cut its business ties. It apparently became too difficult politically for the party to deny its own arguments.

"If the military makes its own money, it's hard to supervise it," said Wang. "If the government makes money, who supervises the government? The principle is the same."