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Why China is a Freer Country Today. And so is the World.

So, now we have it. China has made the big leap forward.

My friend and colleague Fuguo Cao, Professor of Law in Bejing, with whom I am writing these days an article on SME’s Public Procurement Policies in China has just confirmed me what I was waiting with trepidation to be told. That just recently the Chinese Government has come out with a legislation similar to the American one of set-asides in public procurement shares for small and medium firms that participate to tenders of the public sector in China.

30% of procurement to be allotted to those firms (even though uncertainty remains as to whether this includes or not subcontracting), possibly thus a higher share than the 23% recommended in the United States.

Within this 30%, 60% has to go to micro firms, the smallest and most discriminated against.

In those tenders where large firms are allowed  (the remaining 70%), these will have to bid a lower price by 6 to 10% to be awarded the contract, forcing them to bid more aggressively to the advantage of taxpayers’ money.

Why is this so so important?

When in 1953 the United States government started protecting its small firms through public procurement, they knew they were doing it for the sake of future competitiveness of their economic system and the strength of their Nation. Read the beauty of this passage of the American Small Business Act, its incipit:

“The essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation. Such security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation.”

Ain’t it beautiful?

Now China is at that magic strategic point in time where the United States were in 1953. This is no surprise. In the late 1950s US income per capita in todays value would have been approximately 10.000 US $. Today China’s per capita income is approximately 5000 $, but 8500 $ when corrected for purchasing power, amazingly similar to the one of the 1950′s America.

It is that magic moment in time (after a first wild phase of confused and tumultuous economic development) in which a country decides to take its future into its own hands and builds advanced institutions that nurture one of the most relevant factors that allow for dynamism to sustain itself: the perception of equal opportunity for all, small and big, based on a large provision and maintenance of fairness in society.

When a society is fair, there the youngest and brightest minds will decide to reside, certain to maximize the returns from their ideas and investments.

We should not fear China so much because from now on it will exclude small firms that are non-Chinese from governments contracts (small non Chinese firms are marginal in Chinese procurement) but, rather, we should fear China because, by becoming more open to the concept of fairness and equal opportunity, it is adding to its capitalistic engine the largest amount of horsepower that one could conceive: protection from abuse and enforcement of fairness.

But fear not Western world: in the end a freer China is a freer world.


  1. I’m confused, you’re saying that it’s becoming more free…By blocking off foreign competition and bigger businesses from that 30% even if they could do a better job? That’s not like any free market I ever heard of.

    • In a sense, yes. Because the free market we know best, the USA, has done so exactly for the purpose of creating a whole army of small domestic firms that can now participate to the US economy in a way they would never be able to do had they just been left to compete an impossible battle against larger giants. Madison had it clear in his head with regards to US firms versus large UK manufacturers. The concept: you have a child, you protect him in his early stages so that he will be able to survive and grow on his own. If it is true for humans it must be true for one of human’s most fascinating adventures: entrepreneurship.


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