Overseas mergers and acquisitions by state conglomerates, particularly financial and investment vehicles, will allow them the opportunity to set up international headquarters overseas, which would be a great boost to Hong Kong's status as a global financial and business centre.

'I think it could happen,' Mr Li said, in response to a question on whether Beijing would allow some state firms to move their headquarters to Hong Kong.

The South China Morning Post has learned that the State Council has been studying the issue for some time and Mr Li's answer suggests the cabinet will allow some large state firms, particularly state investment vehicles looking to expand overseas, to be headquartered in the Special Administrative Region.

'The decision of where to locate headquarters is dependent on what is most beneficial for business development,' Mr Li said.

He added that it was now up to state enterprises to decide where to be headquartered and the central government would not restrict their choices.

Mr Li said Sasac would not also dictate whether state-owned firms choose Hong Kong or mainland stock exchanges for their initial public offerings, even though the commission has encouraged them to choose Hong Kong in recent years.

'We encouraged state-owned companies to launch their IPOs in Hong Kong or overseas markets because the A-share market was at an early stage of development,' he said.

He noted that the state would not sell large blocks of shares in listed, centrally administered state-owned enterprises because it wanted to maintain control of the companies.

'Even though many of their shares will become freely tradable, it's impossible to envisage heavy dumping for a long time to come because we need to maintain our controlling stakes,' Mr Li said. 'Reports of widespread sales of state shares are being played up and are completely groundless.'

Separately, Mr Li said the State Council had set up a task force to study price reforms for the power sector as price curbs on oil and electricity had led to shortages and huge losses for producers.

Shortages of power and oil have been exacerbated recently as the central government has redirected resources towards the rebuilding of earthquake-hit regions in Sichuan and ensuring the Olympic Games run smoothly.

Mr Li dismissed market speculation that Sasac intended to restructure the electricity sector by combining the five big power generating enterprises into three enterprises.

'There is no such plan,' he said.

Mr Li said all power companies under central government control posted losses in the first half of the year.

Most mainland power generators are coal-fired but the pricing of coal and electricity remains distorted as a result of the country's energy pricing policies.

Mr Li pledged to accelerate the pace of restructuring of state-owned enterprises.

He said the economic slowdown in the United States would have an impact on state companies and advised senior executives of state enterprises to expedite restructuring in order to be prepared to face future challenges.

Mr Li said Sasac's target of reducing the number of central government-managed enterprises to 80 by 2010 remained unchanged. About 150 state-held firms are under the direct control of the central government.