Mainland needs to let private investors in
The central government has for a decade been promising to open key strategic sectors to private investment. Despite the pledge, there has been little progress. Banking, telecommunications, public utilities, transport, energy and media remain firmly in the government's hands. The vow was given its annual airing on Monday. But this time, the circumstances are different. Opening up these sectors is needed to help forge a recovery from the impact of the global financial crisis.
Economic growth has been slashed. Figures for investment, trade and consumption are markedly down. Returning the level of growth to at least 8 per cent is essential to poverty reduction, job creation and development. Allowing investment and competition in areas of the economy that have been all but closed is a significant part of the solution.
The guidelines unveiled by the National Development and Reform Commission are precisely what is needed. They stress the necessity of liberalising markets and giving the private sector a greater role. Details were lacking, but the sentiments are sound. Without the first step of allowing domestic investment, the 4 trillion yuan (HK$4.5 trillion) economic stimulus package will falter.
The central government will provide 1.18 trillion yuan of the funding. Bank loans, state-run companies and local governments are expected to be the source for the remainder. Government spending is necessary, but it cannot alone ensure the health of the mainland's economy. Private investment is also needed.
All areas were controlled by the state when the mainland was a planned economy. That system has been dismantled, but state-run enterprises are still staffed by people with close ties to the government. They are widely seen as being the business arms of the ministries they used to be attached to. Opening up these industries to private investors would improve competitiveness and lower the cost of goods and services.
But it will not come easily. Overhauling so massive a system will take time. The process will be meaningless unless the authorities are genuinely committed to allowing competition. Investors have to be confident that what is in place is fair and open.
Beijing is the majority shareholder in the firms that control the most important industries. Divesting its interests and allowing in private investors will generate trillions of yuan. The competition that results will lead to improved technology, better service, greater efficiency and lower costs. Sturdy economic growth will be assured.