Go-ahead for private investment in SOEs

PUBLISHED : Saturday, 26 May, 2012, 12:00am
UPDATED : Saturday, 26 May, 2012, 12:00am

Beijing has given the all-clear for a long-awaited plan to break the monopoly of government-controlled industrial giants, putting out a guideline that encourages private investment in state-owned enterprises (SOEs).

The State-owned Assets Supervision and Administration Commission (Sasac) said yesterday that the bias against the mainland's private investors would be removed when state-owned firms wish to sell stakes or seek capital infusions.

Though the guideline provides few details as to how private investors can participate in the strategically significant privatisation push, it represents a bold step by the central government to overhaul the world's second-largest economy.

Sasac said it would promote the injection of private funds into the major SOEs, sending a message to cash-rich entrepreneurs that the government welcomes their money as part of its efforts to reform state-controlled sectors such as telecoms, oil exploration and coal mining.

Private funds would be allowed to 'contribute cash, buy equities, purchase convertible bonds or lease equipment to get involved in the restructurings of SOEs', Sasac said in a statement. 'The guideline reflects equal treatment of various kinds of investors and it helps ensure fairness in economic development.'

Beijing has a tight grip on heavy industries that are the backbone of the national economy.

Major state-owned industrial giants including China Mobile and PetroChina have benefitted greatly by being monopolies in the mammoth mainland market, with the government having a final say on the pricing of their products.

The powerful SOEs have also angered mainlanders, many of whom believe such organisations are a hotbed of corruption.

While aware of such problems, the goverment has been cautious about taking drastic steps to resolve these issues because of resistance from the industrial giants.

Most of the top bosses with the major SOEs carry the rank of minister or vice-minister and can influence regulators in policymaking.

In 2010, the State Council said it would encourage private investment in the state-owned sector but the statement was seen as lacking concrete measures.

The government has faced increasing pressure from the public to end the SOEs' monopolies over the past two years as people grumble about declining living standards due to persistent inflationary pressures.

Earlier this year, Premier Wen Jiabao made rare remarks about the country's banking sector, accusing the biggest state-owned lenders of making easy money as they are monopolies.

Major state banks were reported to have imposed hundreds of arbitrary fees on their customers without notifying them.

'The Sasac guideline at least gives people and private investors confidence in the government because it is willing to try and solve this deep-rooted problem,' said Shao Yi, a Shanghai entrepreneur.

'But the road to success will be long and convoluted.'

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