Private sector wary of Beijing's plan for 'mixed economy'

Private sector executives see long road ahead for Beijing's plan to let market forces play a bigger role in economy given past experience

PUBLISHED : Monday, 17 March, 2014, 2:28am
UPDATED : Monday, 17 March, 2014, 2:28am


Implementing Beijing's plan of forcing state-owned enterprises to offer assets and investment opportunities to private firms will not be easy, some mainland business leaders say.

Some, dismayed by previous experiences in joint investments with state enterprises, worry Beijing's policy intentions may face significant challenges at the local level. Details of how the plan is to be executed have yet to be released.

"This idea of mixed state and private economy is a case of putting new wine in an old bottle," Sanpower Group chairman Yuan Yafei told a panel discussion at the Chinese People's Political Consultative Conference. "If private investors' stakes are restricted, Beijing's idea of letting market forces play a 'decisive' role in the economy won't be executed properly."

Mixed state and private economy [idea] is a case of putting new wine in an old bottle
Yuan Yafei, chairman, Sanpower

Yuan cited oil giant China Petroleum & Chemical's (Sinopec) decision last month to allow private firms take a stake of up to 30 per cent in its fuel marketing division as an example of restrictions in participation.

Sinopec's move is a response to Beijing's call - after a four-day meeting in November last year of the nation's top leaders - for state firms with monopolistic market positions to co-invest with private firms to help boost business efficiency and economic growth. It also stated that market forces should have a "decisive" role in the economy.

During the National People's Congress meeting last week, Premier Li Keqiang stated in his work report that Beijing would this year iron out details of the policy.

State firms in finance, petroleum, electricity, railways, telecommunications, resource development and utilities sectors should come up with concrete investment opportunities for private-sector participation this year, Li said.

Yuan said the mindset of state firm managers and entrenched human resource practices could be a challenge for private firms if they had little management influence.

Nanjing-based Sanpower in 2011 bought a 30 per cent stake in brokerage Jintai Futures, which is 40 per cent controlled by the Jiangsu provincial government's Guoxin Asset Management.

"As it turned out, [Guoxin] classified Jintai as a junior-level operating unit and would only offer less than 200,000 yuan (HK$253,000) annual salary to its chief," Yuan said. "In today's competitive market for finance talent, without 1 million to 2 million yuan in compensation, how can you attract the right people?" Yuan said.

"I did not get any dividend from Jintai after investing in it for three years. I've told [Guoxin], either I sell my stake to you or you sell yours to me."

Pan Gang, the chairman of dairy firm Inner Mongolia Yili Industrial Group, told the panel that Beijing should also provide legal protection to private firms by revising laws and regulations that discouraged or barred them from entering certain businesses.

Li Shufu, the chairman and controlling shareholder of Geely Automobile, said while Beijing's policy was a good opportunity for private firms, his recent experience in dealing with government red tape suggested it might be difficult to implement.

Frustrated by the "monopolistic" control of the China Association of Automobile Manufacturers (CAAM) by state firms, Li told the panel that he tried to set up an association of private carmakers but failed to do so since regulators said that would need the consent of CAAM, which saw the prospect as a threat.

"Giving up the idea of an industry association, we tried to organise a China car brands research society, but even that needs to be endorsed by the CAAM, and of course they didn't," he said. "It's all to do with officials' reluctance to take responsibility in case there are negative consequences."

Wang Junjin, the chairman and controlling shareholder of Shanghai-based aviation-to-retailing conglomerate June Yao, said while he shared other private firms' concerns, they should look beyond their previous experience.

"Both state and private firms are changing with time, we should try to achieve win-win outcomes," Wang said. "Where private firms are the second-largest shareholders, they should not expect to have management control and be ready to negotiate for compromises."

Sinopec chairman Fu Chengyu also attempted to allay scepticism of Beijing's resolve to allow private firms to play a bigger role in monopolistic sectors.

"[This is a door] that cannot be closed once it is opened," Fu told China Central Television. "What state enterprises lack is a flexible management and decision-making system, while private enterprises have limited capital."

He said there were no guidelines from Beijing on how much stake private enterprises should be allowed to own while co-investing with state enterprises.

All private firms, including foreign ones, should be allowed to invest in state projects on a "same share, same right" basis, he said.