Private sector crucial to sustain China growth, Moody's says

Ratings agency says freer flow of state capital will help ease funding pressures on SOEs

PUBLISHED : Thursday, 05 December, 2013, 6:00am
UPDATED : Thursday, 05 December, 2013, 6:00am

Allowing the private sector to play a bigger role in society can help China achieve stable growth next year, says credit rating agency Moody's Investors Service.

"The government will not allow massive privatisation to happen but it will allow state capital to flow more freely and allow the private sector to take funding pressures off state-owned enterprises. Otherwise, the [current] rate of growth in the mid-7 per cent won't be sustainable," said Kai Hu, vice-president of Moody's corporate finance group.

Hu said reforms spearheaded by President Xi Jinping at the Communist Party's third plenum last month will transfer preferential treatment previously afforded only to state-owned enterprises (SOEs) to more private firms on the mainland.

Private companies will benefit from a more level playing field, such as lower barriers to monopolised sectors, relaxation of investment control, access to capital market and bank credit and the ability to qualify for initial public offerings.

The central government will also promote mixed ownership of firms so that boundaries will eventually blur between SOEs and private companies, Hu said.

Hu said private enterprises in the mainland are already increasingly providing equity for government-led infrastructure projects and would likely continue to play a greater role in future.

"SOEs still have strong cash flow and support from the government, but selling stakes to private shareholders can help them free up capital for overseas expansion," he said.

Late last year, state-owned China National Petroleum Corporation, the country's largest oil and gas producer, met several private insurance groups in preparation to sell stakes in its natural gas pipeline projects.

In April, private-equity giant Hony Capital bought a 10 per cent stake in Chengtou Holdings from Shanghai Urban Construction Investment and Development.

"The key is to rebalance the roles of the state-owned and the private sectors and let the market take a decisive function in allocating resources," said Tom Byrne, senior vice-president of Moody's sovereign risk group.

Byrne said this could offset the risks of negative impact on China's economy from international monetary stimulus measures, particularly from the US and possible flare-ups in the euro zone's debt crisis.