Overhaul of ministries offers long-term gains for investors
A drastic overhaul of the Chinese Government involving disbandment of 12 of its 41 ministries could mean short-term confusion for foreign investors but should result in streamlined, faster and more objective approval procedures.
The National People's Congress last month approved the dramatic restructuring plan, which sidelines half of the country's eight million civil servants and abolishes 12 ministries and three commissions.
For foreign investors, the most important developments are: Upgrade of the State Economic and Trade Commission (SETC), which assumes the regulatory functions of economic ministries - such as chemicals, coal and electric power - that disappeared under the consolidation. It is responsible for metallurgy, power, coal, internal trade, oil and chemicals, tobacco, light industry, textiles and machinery.
Premier Zhu Rongji wants it to function in much the way Japan's Ministry of International Trade and Industry does. China National Petrochemical Corporation president Sheng Huaren, 62, was named as its chief. He can expect to be deluged with dinner invitations from foreign company executives.
Transformation of the State Planning Commission (SPC) into the State Development and Planning Commission - seen by most people as a downgrading, with the new body responsible only for long-term macro-economic policy.
The merger of the ministries of post and telecommunications, electronics industry and radio and television into an information industry ministry under former telecoms ministry chief Wu Jichuan.
The Ministry of Foreign Trade and Economic Co-operation (Moftec) was untouched and continues to oversee foreign investment. Its approval is needed for projects of more than US$30 million.
Three weeks after approval of such a sweeping overhaul, the situation is still confusing. Ministry officials said it would take months to re-allocate duties and personnel.
Foreign firms which spent years developing networks of official relationships may find their investment of gifts, dinners and foreign trips has come to nothing if contacts have been moved or dismissed from government.
A Chinese consultant specialising in the telecommunications industry expects three to six months of chaos before things become clearer.
'The rationale for the restructuring has nothing to do with foreigners and nothing to do with the World Trade Organisation,' he said. 'It is domestically driven and aims to reduce corruption, excess and waste. But, in the long term, approval procedures should become faster and more transparent and there should be fewer projects like Oriental Plaza.' He was referring to Li Ka-shing's development scheme at Wangfujing in Beijing that was approved by the city government, before being frozen and modified by the central Government.
The restructuring would not mean improved access for foreign companies to the mainland's telecommunications sector, especially with Mr Wu in charge, the consultant said.
Conversations with various ministry spokesmen revealed general uncertainty as to how reforms affect ministry responsibilities.
An SETC spokesman said foreign investment remained the responsibility of Moftec, and SETC was concerned mainly with domestic economic reform.
Asked what role SETC would play in approving foreign investment projects, she said many departments had to be consulted.
'We could be consulted and give an opinion, but Moftec remains the most important,' she said.
A Moftec spokesman said details of reallocation of responsibilities were unclear, but should be settled quickly.
'Previously, we consulted with each ministry on a project in its area,' he said. 'In principle, the power of ministries that were abolished should go to the SETC, which will have a division for coal, power etc. Efficiency should be sped up and procedures simplified.' Foreign investors were cautiously optimistic about the overhaul. 'The current vetting and approval system is cumbersome,' an official with a big China-invested American company said. 'It could be a net gain for foreign investors, to streamline the government and get it out of business.
'It could mean better approval procedures. There is discussion of a registration system, under which the government sets guidelines and, as long as your project is within them, it can go forward.
'The big question is whether the SPC, which used to be responsible for greenfield site projects, is being removed from the approval process and replaced by the SETC, which would make sense and make things quicker,' she said.
A Price Waterhouse partner in Beijing, Johnny Chen, said that in a perfect world, SETC would become a supervisory body that judged projects from the national point of view, with no conflict of interest from companies under the former ministries.
'In practice, I am sceptical. The ministries could place their people into the SETC. Then we would not know if it represents the government or business interests,' he said.
But he said that while restructuring and power struggles would cause delays in the short term, it should help create a more transparent and streamlined system.
