Out-Law News 2 min. read

China to allow private capital in more state projects

Foreign investors will have more opportunities to invest in Chinese state projects and state-owned enterprises, including those in the oil, railways and telecoms sectors, as the government speeds up the development of its mixed-ownership economy.

"We will formulate measures for non-state capital to participate in investment projects of central government enterprises," Chinese premier Li Keqiang told the opening of the annual session of the National People's Congress (NPC) in Beijing on Wednesday according to Xinhua, the state press office of the People's Republic of China.

The Chinese government also announced reforms targeted at restructuring the country's existing state-owned enterprises (SOEs).

"We will improve the system for managing state-owned assets, clearly define the functions of different SOEs, and carry out trials of investing state capital in corporate operations," Li told the Congress, which is China's top legislature.

The government also announced reforms to the railway investment and financing system, and pledged to encourage full participation of private capital by opening competitive operations in more areas.

Li's statement follow China's unveiling last November of its masterplan to actively develop a mixed ownership economy and allow an increased number of SOEs and other firms to develop into mixed-ownership companies. The document, issued by the Communist Party of China Central Committee, also acknowledged the role of the private sector role in promoting growth and job creation, and pledged to let the market play a decisive role in the development of China's economy.

Earlier this week Zhang Chunxiao, an adviser at China's State-Owned Assets Supervision and Administration Commission (SASAC), which has responsibility for 113 state-owned companies, indicated that China will aim to attract foreign capital into its mixed-ownership markets.

"Reform towards fully mixed ownership will increase, in such areas as petroleum and petrochemicals, power and telecommunications," Zhang told Reuters news agency.  "State-owned enterprises will look to attract high-calibre strategic investors, including foreign capital."  

Zhang said that Beijing would retain control of critical enterprises, including those relating to national security and ports, transportation and energy exploration and production.

Zhang's comments followed China's announcement on February 20 that it is to sell a stake in a subsidiary of Sinopec,in a move Xinhua described as "the first opening up of the largely monopolized sector."  Sinopec is the largest oil refiner in Asia. The government plans to sell up to 30% of Sinopec's marketing arm, which owns more than 30,000 petrol stations. The marketing and distribution division of Sinopec, which also engages in oil and gas exploration, refining and chemicals production, accounts for nearly half of the group's annual total operating profits. In the first nine months of 2013, the segment posted an unaudited operating profit of 27.03 billion yuan ($4.46 billion), Reuters reported.

The sale of Sinopec represents an opportunity to invest in China's fuel supply market, but details of the sale have yet to be released. It is not yet clear whether China would sell the stake via an initial public offering on the stock exchange or through a trade sale to investors or by some other means. 

China has gradually introduced private investment to a number of its state firms over the past 20 years. By the end of 2012 the central government-controlled state-owned enterprises owned 378 subsidiaries trading on global stock markets, while provincial and local government firms had listed an additional 681 companies by the end of 2013, according to Reuters. In recent weeks, a number of local governments have said they will be looking for more non-state investors, including those of Guangdong and Shaanxi province.

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