China lowers barriers to allow private capital flow

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Last updated at: (Beijing Time) Monday, October 27, 2003

China lowers barriers to allow private capital flow

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The State Development and Reform Commission (SDRC) is reviewing approximately 120 regulations and rules to abolish clauses that limit private capital flow, as part of the effort made by the central government to encourage the development of the private sector.

Ou Xinqian, vice-minister of the SDRC, said the commission might also work out an investment guidance and detailed list of "encouraging industries" for private capital. To attract investment from overseas, China set guidelines for overseas investment several years ago.

A decision made by the Third Plenary Session of the 16th CPC Central Committee earlier this month allowed private capital to enter infrastructure, public utilities and other sectors not prohibited by laws and regulations.

The decision allowed private enterprises the same preferential treatment as their state-owned counterparts in investment, finance, taxation, land use and foreign trade.

"The central government is fully aware of the fact that an equal competition environment for the private sector has become crucial for the high-quality growth of China's economy," said Prof.Li Yiping with the Economic Institute of the prestigious People's University of China in Beijing.

Local governments have also acted on the guidelines of the decision. In China's northernmost Heilongjiang province, the local government has provided 40 infrastructure and basic industrial projects worth 35.3 billion yuan (4.24 billion US dollars) for private companies to bid for. In the past, all these projects were monopolized by state firms.

In some industries where private capital was allowed to invest, there were numerous unwritten limits with regard to market access, land use, and taxation, which stopped full participating of private capital.

The share of private capital investment in total social investment has increased greatly over the past two decades, and is now up to 40 percent, according to the National Bureau of Statistics.

The NBS also noted that the private sector has contributed two thirds to the overall growth of the national economy while one third comes from the state-owned sector.

As a set policy, the government has decided that all areas opened to foreign capital will be opened to domestic private capital. Also, private capital is encouraged to join in the restructuring of former state-owned firms.

Bolder steps will follow.

A noted economist who worked on central government policies in the area, acknowledged that the financial sector will open wider still to private capital in the years ahead as private investment in banks and small and middle financial institutions will be encouraged. To improve the financing capacity of private firms, the government will set up a special warranty system and allow equal treatment in the securities listing and bond issuance.

"It's the direction of reform to provide unified policy to companies no matter what their structures of ownership are," said Prof. Li Yiping.

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