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Private sector doing well as the State relaxes grip
( 2003-12-24 11:15) (China Daily HK Edition)

** The bridge being built across Hangzhou Bay on the East China Sea is unique in at least two ways - scheduled for completion in 2010, the 36-kilometre-long structure will be the longest of its kind in the world; and five consortiums consisting of 17 privately-owned companies are furnishing more than half of the capital investment for the project to link Shanghai and Hangzhou, the best developed cities in the Yangtze River Delta.

Project officials say that State-owned companies are to make up the rest of the cost, initially estimated at 11.8 billion yuan (US$1.42 billion), and the government will not spend a single penny on the project.

** Shanghai Junyao Group Company, under so-called "non-public ownership" in China's official terminology, takes an 18 per cent stake in China Eastern Airlines Wuhan Co. According to Xinhua, the launching of the Wuhan company in August 2002 was the first major step in restructuring China's civil aviation industry hitherto owned exclusively by the government.

** The private sector now generates 90 per cent of the gross domestic product (GDP) in Zhejiang Province to the south of Shanghai. The figure is as high as 99 per cent for Cixi City in the province. Of the more than 70,000 industrial and business companies currently operating in the city, only three are still under State ownership. According to local officials, even the last three State-owned companies are being transformed into public-private joint undertakings.

Tourists queue up at the World Carnival in Shanghai. The private sector is in for a festive time as the government relaxes its policy on non-State investment. [Reuters]

The examples clearly illustrate that the days of the Soviet-style centrally-planned economy are long gone.

"Remarkable changes have taken place through China's market-oriented economic reforms," says Bao Yujun, president of the China Private Economy Association. "Investment from the private sector now accounts for 40 per cent of the gross total for the entire country, from zero in the past."

Bao notes, in particular, that since 1999, capital injection by the private sector has been growing at an accelerating speed - 7.53 per cent for 1999, 11.44 per cent for 2000, 12.59 per cent for 2001, and 13.8 per cent for 2002. In addition to the traditional manufacturing and service industries, he adds, 16 other major industries involve use of private investment including infrastructure development, education, culture, financing, insurance and foreign trade.

According to the Catalogue for Foreign Investment in Industries of the State Council that went into effect on April 1, 2002, "all the fields open to foreign investment shall be open to domestic capital as well".

"The formulation 'domestic capital' can be interpreted as including capital from the private sector," Bao explains.

The catalogue classifies Chinese industries into three categories - those where foreign and domestic investment is encouraged, those where it is restricted and those where it is banned because of national-security concerns.

Among the 255 areas in the first category, private investment is denied entry only for an "extremely few" such as nuclear-power generation.

In principle, the 77 areas of the second category are open to private investment except those under State monopoly, including for example, wholesale of salt, cigarettes, crude oil and oil products.

Foreign investment is not permitted in 33 areas, but at least half of these continue to open to domestic capital. One example is manufacture of traditional Chinese drugs based on secret prescriptions passed down within families from generation to generation.

State relaxes grip

In keeping with the progress of China's economic reforms, even sectors under State monopoly are beginning to open to private investment. The Ministry of Construction made it clear towards the end of 2002 that private capital shall be allowed into construction of urban public utilities that used to be financed exclusively by the government.

In response, Beijing has opened the local urban infrastructure market under the policy of "participation by the private and foreign investors and allowing market mechanisms to play a pivotal role under government guidance". Now busy with preparations for the 2008 Olympic Games, the Chinese capital hopes to raise 230 billion yuan before 2008 to improve the city's road and urban rail systems, facilities for supply of water and gas, as well as facilities for treatment of sewage and solid wastes. Municipal leaders have time and again pledged equal opportunities and fair competition to all potential investors in compliance with internationally-applicable practices.

Fresh boost

In October 2003, the Third Plenary Session of the 16th Central Committee of the Communist Party of China adopted a decision on improving China's market-oriented economic system. According to Professor Li Yiping, an economist with the prestigious Renmin University of China, the decision will provide a "fresh boost" to private investment. "The decision amounts to saying that private investment shall be allowed into whatever industry and whatever area provided it is not explicitly prohibited by law," he says. "Moreover, it calls for equal treatment of all players on the market, whether they are Chinese or foreign, whether they are State-owned companies or private business operators."

Back in the late 1980s, the central government designated 526 items to receive priority for development, but denied entry of private investment for nearly half. In line with the latest decision of the Party Central Committee, Guangdong passed local legislation to the effect that all on the list shall be open to private investment except less than a dozen including long-distance, ultra-high voltage power transmission, nuclear energy and production of radioactive drugs.

Central government departments, on their part, are busy screening policies, decisions and legislation on private investment to see what should be abolished in line with the Party's decisions, what should be revised and what should be retained.

The State Development and Reform Commission (SDRC) is reviewing approximately 120 sets of regulations and rules for the purpose. According Ou Xinqian, vice-minister in charge of SDRC, the commission may work out a list of industries where private investment is encouraged.

According to officials and experts interviewed for this article, the government is taking a range of "bold steps" to expand the role of the private sector in China's market-oriented reforms. The private sector will be "encouraged" to get involved in mergers and acquisitions of State-owned enterprises. It will be allowed a part in the financial sector - put another way, privately-owned banks and joint stock banks with participation of private capital will be set up in China in the future.

According to a source at the People's Bank of China who preferred not to be named, China's first few privately-owned banks will win approval for operation soon. "Assessment of their application for business has been done and approval is just a matter of time," he says, declining to give details.

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