- Associated Press - Monday, July 26, 2010

BEIJING (AP) — China’s Cabinet promised private investors a bigger role in industries from oil drilling to finance, apparently responding to complaints that state companies were boosted by Beijing’s huge stimulus while private enterprise withered in the global crisis.

The Cabinet announcement Monday appeared to apply only to Chinese investors, not foreign companies, and gave no details of their possible role in politically sensitive areas such as energy. It also promised to help private companies invest more abroad.

Beijing’s stimulus spending fed an expansion of state industry while private companies shrank or struggled amid plunging global demand, temporarily reversing the trend of three decades of economic reform. Chinese media dubbed the phenomenon “guo jin, min tui,” or “the state advances, society retreats.”

“This statement shows the government’s decisive momentum to address ‘the state advances, society retreats’,” said Lu Zhengwei, senior economist for Industrial Bank in Shanghai.

Private companies generate the bulk of China’s new jobs and wealth and analysts warned that concentrating so much money on less dynamic state-owned companies might lead to economic problems later.

Mr. Lu said the impact of Monday’s announcement will not be clear until ministries say how each industry will be affected.

“Whether there are big opportunities and in which areas, we really need to see the final regulations,” he said.

Monday’s announcement included a five-page list of areas where the government promised to increase access for private investment. They ranged from building airports, hospitals, schools and water systems to setting up financial institutions.

In energy, private companies will be encouraged to partner with state oil and gas companies to “co-exploit” reserves, the statement said.

China’s energy and finance industries are dominated by state-owned entities and there was no word on what limits might still be imposed on private investors. In recent years, private owners of oil wells and coal mines in some areas have been forced to sell them to government entities.

Beijing also will support a role for private investors in major science and technology projects, another sensitive area, the statement said.

Private companies will be encouraged to invest abroad and regulators will treat every investment entity equally, the statement said. Chinese foreign direct investment has surged in recent years, but much of that is spending by state companies on oil and other resource assets while investment by private entities is low and growing slowly.

Associated Press researcher Bonnie Cao contributed to this report.


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