The railway sector has long been notorious for its absolute state control. In May the Ministry of Railways released the Implementation Opinions of the Ministry of Railways on Encouraging and Guiding Private Capital to Invest in Railways, but compared with the 36 New Guidelines it does not constitute any essential breakthrough. “The Ministry of Railways Opinions does not specify investment models, such as equity holding, equity control, joint venture or wholly private equity, of private capital investment in railways. Rules that thus intentionally blur certain issues represent real and systematic barriers to the entry of private capital into state-monopolized fields,” economist Ma Guangyuan remarked. “Unless a radical change occurs in the railway industry, in the context of the participation of private capital in the construction of railway projects, there is still no way of guaranteeing the legitimate rights and interests and investment returns of private investors,” Ma concluded.
Deputy director of the research center for transportation economic theories and policies of Beijing Jiaotong University Li Hongchang endorsed Ma’s opinion. “This round of support policies for private capital to enter the national key industries consists of little more than statements of principles. Although they represent breakthroughs, they do not include specific rules applicable to certain key issues. Multiple barriers still exist to the entry of private capital into the field of highway construction,” Li observed. Since 2009, with the aggresssive expansion of government investment in infrastructure to stimulate the national economy, the participation of private investors in the construction of railways and highways has been basically phased out, according to media reports.
“Private investors have specific expectations. One is that of status equal to state-owned enterprises. They expect to be allowed to hold equity, and also to control equity or have acquisition rights – radical reforms indeed. Second is the maintenance of stable and consistent policy. Private investors can feel confident about state policies only after they have witnessed their actually execution,” president of the Wenzhou Small and Medium Enterprises Development Association Zhou Dewen said. In his view, policies encouraging private investment will obtain results only after coming into effect and being seen to guarantee the legitimate rights and interests of private investors.
Opening: an Inevitable Trend
In spite of their different wordings, the specific implementation rules on encouraging and guiding private investment that these ministries and commissions have laid down nonetheless signify a clear stance by the central authorities on welcoming greater participation of private capital in SOE reform, in Li Jin’s opinion.
In the 1990s, the main aim of China’s small-and-medium SOE reform was to marketize those enterprises through market competition, according to Shao Ning. Nowadays, SOE reform is mainly undertaken by listing them on the stock market and thus taking advantage of the capital market, so making them autonomous market entities able to independently assume their civil obligations.
Research fellow of the Development Research Center of the State Council Liang Yangchun believes that the participation of private capital in state-owned enterprises will help optimize the rational allocation of state-owned assets and improve liquidity. “With state-owned capital low in liquidity and irrational in allocation, China’s SOEs are usually low on efficiency and flagging in vitality. The introduction of private capital could be conducive to the restructuring of SOEs and the breaking of state monopolies in certain key industries,” Liang said.
China’s reform experience proves that industries with a high degree of competitiveness through the involvement of private enterprises can make impressive, sustainable progress. Owing to the absence of competition in monopolized industries, on the other hand, the prices of products usually stay high and business stagnates. Certain observers have pointed out that the opening-up of monopolized industries is a practical channel through which China can avoid excessive government involvement in business. They maintain that the separation of governmental power from economic operation constitutes the foundation of evenly distributed social wealth, whereas the close bonding of the two results in uneven distribution of wealth and an abnormal economy. At present, private enterprises have a small niche in social service fields such as infrastructure construction, finance and insurance industries, scientific research, education, and cultural and health industries, while state-owned enterprises monopolize key industries like power, petrochemicals, telecommunications and civil aviation. The entry of private capital will strengthen and revitalize industries, stimulate competition and promote industrial development. This will enable both SOEs and private enterprises to achieve greater growth, creating employment and generating more profits.
Liang Yangchun nevertheless stresses the importance of state control over such key fields as the power grid, high-speed railway network, large and critical infrastructure, military industry and those concerning people’s livelihood and national security. “Although private capital can be introduced to some of those industries, state control must be maintained because they are critical to the country’s stability and people’s overall livelihood,” Liang said.
Wang Xiaotao, chief of the Fixed Asset Investment Department of the National Development and Reform Commission, holds that private investment, endowed as it is with inexhaustible innovative capacity, will drive economic growth and vitalize the national economy. He believes that to develop the mixed ownership economy, the country should bring the initiative of private enterprises into full play and make them a main driving force for national economic development. Wang sees this as the sole means through which China can achieve economic transformation and sustainable development. Li Jin perceives moderate opening-up of monopolized industries as an inevitable trend in China’s economic development. In his view, the 14 Opinions represent guidelines only. Relevant state supervisory departments should introduce specific implementation rules that are applicable to those industries.