Caixin
Dec 22, 2016 06:23 PM
ECONOMY

Monopolized State Sectors to Accelerate Opening to Private Capital

(Beijing) — As China opens up its huge state-owned monopolies to private investment, the first entry points are likely to be in sales, such as automobile gas stations and power distribution facilities, or new lines of business, official media reported Thursday.

Beijing hopes to improve the efficiency and competitiveness of lumbering state-owned enterprises (SOEs) by allowing private capital to invest in the sector through an initiative known as mixed-ownership reform.

It will be "an important breakthrough point" for SOE reform in 2017, said a statement released after the Central Economic Work Conference held in Beijing last week. There, top officials led by President Xi Jinping set the agenda for policymaking in 2017.

"Concrete progress will be made in sectors such as electricity, oil, natural gas, railways, civil aviation, telecommunications and the military," it said.

All seven sectors are traditionally monopolized by SOEs, and their restructuring has been regarded as a tough nut to crack due to the enormous markets, natural resources and policy advantages the companies enjoy.

But the message sent through the statement is that mixed-ownership reform of the industries will pick up steam next year and probably be first realized in the SOEs' sales divisions and new businesses, said the China Securities Journal, citing Li Jin, executive director of the China Enterprise Research Institute. The newspaper is run by the official Xinhua News Agency.

"'Breakthrough point' suggests that mixed-ownership reform will be conducted before other steps to restructure SOEs, with concrete actions to be taken," Li was quoted as saying.

Gasoline stations in the oil industry and the distribution business of the electricity sector, for example, are the likely fields to see private investors taking a stake first, he said, according to the Shanghai Securities News, which is also linked to Xinhua.

Previously, most of the companies that carried out the reform to diversify their shareholding structure were mainly in "perfectly competitive industries" such as food, building decoration, retail, media and the internet, the China Securities Journal said.

Opening the monopolized sectors to private investors will generate "traction force" to accelerate overall SOE reforms, and the next two years will be critical for the endeavor's success, the Economic Information Daily cited Li as saying.

The National Development and Reform Commission, the country's top economic-planning agency, said in November that the government had selected "seven companies and projects" in the electricity, oil, natural gas, railway, civil aviation, telecommunication and military industries to carry out mixed-ownership reform on a trial basis, without giving specific names.

Shanghai-based air carrier China Eastern, telecom operator China Unicom, electricity distributor China Southern Grid, power plant equipment maker Harbin Electric Corp., nuclear power plant constructer China Nuclear E&C Group, and China State Shipbuilding Corp. are widely believed to be listed in the trial program as they were asked to introduce their plans for the reform in an NDRC seminar in late September.

China National Petroleum Corp., the country's biggest oil producer, is seen as the seventh company to join the project after it announced on its website Wednesday that the company has passed a directive guiding the sprawling firm's mixed-ownership reform.

Contact reporter Fran Wang (fangwang@caixin.com)

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