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China may allow more private investment in state-owned companies

Investors could be allowed to enter Chinese government-controlled sectors such as electricity, oil and natural gas.

May 29, 2012|By David Pierson, Los Angeles Times

BEIJING — Faced with declining profits and a slowing economy, China said it was drafting plans to boost private investment for industries long dominated by the state.

Investors could be allowed to enter government-controlled sectors such as electricity, oil and natural gas, the New China News Agency reported Monday, citing an official at the National Development and Reform Commission.

Other areas potentially open for investment include healthcare, rail transportation, education and finance. It's unclear whether foreign investment would be part of the new plan or whether an infusion of private capital would lead to more non-governmental control of China's state-owned enterprises.

If implemented, the reforms could go a long way toward leveling China's economic playing field. China's powerful state-owned enterprises have been criticized for operating inefficiently and wielding too much political influence. Many enjoy near-monopolies in the country's most strategically important and lucrative sectors, such as telecommunications, aviation and energy.

This is not the first time the central government has touted state-sector reform. China announced policies to boost private capital as recently as 2010 and 2005 without much success.

"State-owned companies are the foundation of the ruling party," said Hu Xingdou, a professor of economics at the Beijing Institute of Technology, explaining why those policies never gained traction.

But economic conditions today may force China's leaders to follow their rhetoric with action. China, it seems, could really use the cash.

The profits of state-owned enterprises declined 8.6% from January through April compared with the same period last year. Foreign direct investment also fell in April, marking the sixth straight month of decline. Many analysts have also downgraded their forecasts for Chinese economic growth this year to levels not seen since the 2008 financial crisis.

Chinese leaders risk fueling inflation if they try to repeat the aggressive stimulus launched three years ago to power the nation through the global downturn. Still, they've begun pulling some levers to stabilize the economy. Officials reportedly are fast-tracking infrastructure projects and raising subsidies for home appliances to boost consumer spending.

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