Govt to court private capital

Market-oriented reforms mean less reliance on State for big projects

China's top economic planning agency has promised to drive more private capital into infrastructure, basic industries and public utilities in response to the new leadership's market-oriented reform plans currently taking shape.

Local governments and ministries in the second half of this year will be urged to roll out some major projects that involve private capital, the National Development and Reform Commission said in a statement posted on its website on Monday.

The commission will "actively encourage" private capital to take part in the restructuring of China's financial institutions, it said.

It also promised to create an environment conducive for private investors, cutting "unnecessary administrative interference" and innovating services for private investors.

Han Wenke, director of the Energy Institute under the commission, said the statement is in line with the State Council's and the commission's stance in recent years. They have both issued milestone documents to push forward the width and depth of private capital involvement in the national economy.

In 2010, the State Council issued a document to outline the country's plan to foster the well-being of private investment. Two years later, the State Council and related ministries had crafted 42 detailed rules for the implementation of the 2010 document.

The share of private investment in the total investment in China has been climbing steadily over the past three years. In 2010, private investment made up 55.9 percent of the total fixed-asset investment in that year. By 2012, the number had increased to 61.4 percent. In the first half of this year, the private sector had invested 11.56 trillion yuan ($1.8 trillion) - 63.7 percent of total investment, according to figures provided by the commission.

In some key sectors, the growth of private investment has accelerated and taken up a majority of cash injections. For example, in general equipment manufacturing, private investment now accounts for 89.6 percent of the investment, the commission said.

Despite progress, private investors and experts said there are still obstacles in the development of the private sector, with some of the major components, such as energy, railways, finance and telecommunications, dominated by State-owned enterprises that are lukewarm to private investment.

Even Zhang Ping, the commission's former director, acknowledged the existence of a "glass door" of "invisible" policy hurdles that have constantly impeded the entry of private investment in certain industries.

In the railway sector, for example, although a few branch railway lines have been opened to private investors, the construction and operation of China's railways are still overwhelmingly dominated by China Railway Corp.

The limited progress is mainly attributed to a lack of enthusiasm at China Railway Corp. The corporation, and its predecessor, the Ministry of Railways, have and had no problem raising money because any investment was counted as government-backed and so had a very high credit rating. Introducing private capital is not only troublesome, but also forced it to concede certain power, experts said.

Private investors, too, were reluctant to participate in the railway sector because it was opaque and they were aware that even if they did invest, they would have little say in pricing and operations.

For example, in the second half of 2012, Ping An Insurance (Group) Co of China Ltd and the National Social Security Fund, two major shareholders of the Beijing-Shanghai High-speed Railway, requested permission to withdraw from the venture. The reason was not that the line was unprofitable. Rather, they said they had no say in the pricing and the corporate governance was weak.

"From the perspective of investors, market-oriented reform is a prerequisite for the private sector's engagement in these sectors," said Zhao Jian, a professor of economics and management at Beijing Jiaotong University.

Premier Li Keqiang called on July 25 for multiple fundraising sources for railway construction, including a greater role for private capital and the establishment of a railway development fund.

He also demanded various government support, such as interest subsidies, to guarantee a decent return on the investment.

China Railway Corp and the commission are now revising a specific plan to implement the reform of the railway fundraising mechanism that is scheduled to be submitted to the State Council before the end of the year, the Caixin magazine reported.