China is spending too much money on no-so effective stimulus plans for the infrastructure, while they should more focus on helping the smaller companies, writes leading analyst Shaun Rein for World Policy Blog.
In terms of policies for smaller companies, China could learn from the US:
Over 9 million Americans submitted taxes as S-Corporations last year and over 60 percent of new job growth in the last two decades has been generated by companies with fewer than 50 employees. In China, however, no equivalent of an S-corporation entity exists and establishing a company is a difficult and costly process that often takes months as entrepreneurs work to maneuver through various layers of bureaucracy in multiple ministries.
China have focused much more on the larger companies, with legal entities and large networks, while smaller companies have a hard time to even exist.
Making matter worse, since new human resource laws implemented last year make it costly to fire workers, companies are hesitant to add employees to the payroll and cannot hire short-term contract workers for more than a fixed period of time. This leaves huge numbers of people who would be independent consultants in the United States looking for jobs that do not exist.