Private firms wary of marriage with mainland SOEs
Beijing's promotion of 'mixed ownership' fails to address concerns about their role in revamping mainland's SOEs
At a recent meeting with Premier Li Keqiang, a mainland researcher flagged his concerns about Beijing's plan to introduce more private capital into the state sector.
A government statement following the meeting, however, refrained from directly addressing such concerns, seen as a key hindrance to private entrepreneurs joining the government's new "mixed ownership" drive with gusto.
"Many private enterprises are still wary of the mixed ownership model," said Liu Shengjun, executive deputy director of CEIBS Lujiazui Institute of International Finance, recalling his comments at the meeting.
"There are three major concerns. First, what is the government offering in the mixed structure? Second, how big a share can private investors obtain? Third, what kind of administrative intervention will this 'marriage' have to endure?" he wrote on his Sina Weibo microblog account.
The official statement posted on the central government's website did not mention the issues raised by Liu. Instead, it repeated the standard Beijing line of pushing forward with the government's "self-revolution", ridding the system of unnecessary approval procedures, creating a fairer environment and encouraging entrepreneurship and competition.
The failure to unlock the pent-up dynamism of the private sector has eroded productivity, threatening to further drag down growth. The mainland economy expanded only slightly faster in the second quarter than the 18-month low recorded in the first.
The state-assets regulator unveiled a pilot reform plan last week to encourage more private capital investment in businesses dominated by state-owned enterprises (SOEs). But the government has yet to announce the details or decide on a time frame.
"The main focus [of reforms] in the second half is to streamline administrative processes to relax controls as well as to encourage private investment," said Zhu Haibin, chief China economist at JP Morgan.
"To what extent the policy will be executed and whether a practical and effective solution to attract private capital can be found" would be key to determining economic performance in the second half, Zhu added.
If history is any guide, there is plenty for the mainland's private entrepreneurs to be worried about. In the past decade, many mixed-ownership experiments ended up with SOEs gobbling up profitable private partners, sometimes even forcing them to quit the market.
Private oilfield investors in Shaanxi province, for example, claimed in 2005 that the state had unjustly seized their assets with little compensation, after local authorities had sold the rights to oil wells to them in a mass privatisation exercise beginning in the mid-1990s.
Many liberals and legal experts have also urged a retrial of a landmark case that led to the jailing of tycoon Gu Chujun. The former chairman of Guangdong Kelon Electrical was accused of overstating profits and causing losses of state assets. However, most of the allegations did not stick and were subsequently withdrawn.
Researchers, including influential economist Wu Jinglian, said the case should be retried to allay private entrepreneurs' fears.
Zhang Wenkui, a senior researcher at the State Council's Development Research Centre, said at a February meeting on Gu's case that many entrepreneurs remained unconvinced about how their interests would be safeguarded in further privatisation of SOEs. Entrepreneurs, Zhang said, were unsure if participating in privatisation would "offer a slice of cake" or "dig a trap" for them.
An unfettered investment spree by SOEs has dragged down the mainland's labour productivity to just 1 per cent to 1.5 per cent, from 3 per cent in 2007, Zhu said.
China Beige Book International president Leland Miller said: "SOEs have a common thread, no matter where they are located - because they're run by the government, they will never be anywhere near as efficient, innovative, or indeed profitable as a private counterpart."
In the first five months of the year, SOE profits grew 3.4 per cent year on year, well below the 12.9 per cent average registered by the private sector, government statistics show.
There is persistent doubt over Beijing's sincerity in tackling vested interests in the state sector, which continues to enjoy the perks befitting a command economy. Large SOEs, for example, enjoy interest rates as low as 5.8 per cent when private financing costs hover around 17 per cent in Wenzhou, known as the cradle of small, private businesses.
"But high borrowing costs are not the only problem for the private sector," said Wang Qinwei, an economist at London-based Capital Economics. "Many private players can't even access the formal financing markets."
Echoing the complaint, Dong Mingzhu, chairman of Zhuhai-based manufacturer Gree, said money was not the biggest bottleneck for private businesses. At a meeting hosted by the premier she urged equal treatment for private companies.
"Mr Premier, we don't need any special state industrial policy support," she said. "As long as there's an environment of fair competition, companies can look after themselves."
The premier nodded, Xinhua reported, and praised Dong's suggestion as "very inspiring".