State control spelled out for strategic industries

PUBLISHED : Tuesday, 19 December, 2006, 12:00am
UPDATED : Tuesday, 19 December, 2006, 12:00am

Foreign investment restricted in key sectors 'that affect national security'

The State Council specified yesterday for the first time seven strategic industries where state capital must have 'absolute control', Xinhua reported.

The industries are armaments, power, oil and petrochemicals, telecommunications, coal, civil aviation and shipping, according to the document, prepared by the country's top state assets watchdog, the State-owned Assets Supervision and Administration Commission. Commission director Li Rongrong was quoted by Xinhua as saying that these were 'key and pillar sectors' that would affect China's 'national security' and 'economic lifeline'.

The new tightening rules on foreign investment applied only to the industrial enterprises overseen by the commission, and excluded companies in the financial, railway and postal services sectors.

The regulations reflect a growing concern among the leadership that foreign investment has acquired too many stakes in the mainland's sensitive industries and bought state assets at bargain prices. There are also fears that foreign investors own too much of the technology crucial to China's economic development.

Central-government-controlled companies in the seven sectors had to remain 'solely state-owned' or state capital had to hold 'absolute majority stakes', the document said. Other sensitive sectors that were fundamental to the national economy where state capital should have 'relatively strong control' included manufacturing, cars, electronics, architecture, steel, metals, chemicals, surveillance, science and technology.

State-owned companies in the downstream oil industry and value-added services of telecommunications could 'step up restructuring and diversify ownership by introducing private or foreign capital'.

The number of state-owned enterprises managed by the central government would be almost halved by 2010, with only 80 to 100 remaining after restructuring of the existing 161, it said. The goal was to 'cultivate 30 to 50 enterprise groups with a strong competitive edge in the global marketplace'.

Over the past few months, Beijing has rolled out a set of stricter takeover rules aimed at restricting foreign control of sectors deemed vital to the national interest. In August, rules were set on mergers and acquisitions by foreign investors in the property market. In September, six ministries enacted regulations that gave the Ministry of Commerce expanded power to block foreign purchases of local companies. Also, an anti-monopoly law is being drafted.

Zhang Guobao, a vice-chairman of the National Development and Reform Commission, recently said that 'foreign companies ultimately aim to eliminate competition and monopolise the domestic market'.

The new rules also come as Carlyle Group LP's revised bid for a stake in Xugong Group Construction Machinery, a leading domestic machinery manufacturer, awaits regulatory approval. After a year-long standoff with Chinese authorities, the Washington-based private equity firm reduced its offer to a 50 per cent stake from 85 per cent.

The revised offer, apparently more palatable since the US firm no long seeks control of the company, finally received the go-ahead from the State-owned Assets Supervision and Administration Commission, but is still awaiting approval from the Ministry of Commerce.