Opportunities open for Xinjiang's private sector

Region's energy industry offers perfect stage for mixed-ownership reforms

There is no need to repeat the importance of the Xinjiang Uyghur Autonomous Region when it comes to China's energy interests. Xinjiang not only offers a crucial land passage for China to import energy from Central Asia, and possibly Russia in the future, the region itself also holds substantial energy reserves.

In 2013, added value in Xinjiang's oil industry reached 127.9 billion yuan ($20.59 billion), accounting for 44.2 percent of the total added value generated by enterprises with annual revenues above 20 million yuan, official data showed.

But at present, State-owned enterprises (SOEs) - such as oil giants China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec Group) and leading coal producer Shenhua Group - still command a leading role in Xinjiang's energy sector.

State-owned companies represent some 70 percent of the Xinjiang economy, while the oil exploration and petrochemical industries account for the largest chunk of the public sector, the Xinjiang Daily reported in March.

This leaves the local private sector plenty of room for further development. Already in some eastern localities, such as Shandong Province, the non-public sector makes up over 50 percent of the local economy, media reported in June.

The Chinese government has been pushing reforms to introduce mixed-ownership within centrally-administered SOEs since the Third Plenary Session of the 18th Communist Party of China Central Committee. This opens a window for private firms to crack previously monopolized industries. In Xinjiang, the energy industry would make an ideal testing ground for mixed-ownership reforms.

On July 15, Chinese authorities named the first batch of six SOEs to test reform measures, and ownership reform is one important part. Though CNPC and Sinopec Group, which have multiple subsidiaries in Xinjiang, were not included, the two energy giants have already stepped up efforts to diversify ownership and bring more social capital into their operations.

PetroChina, the listed arm of CNPC, announced in May that it would establish a new company containing certain assets from the first two West-East Gas Pipelines, which all start in Xinjiang, and the new company would be open to social investment.

Sinopec also announced in June that it would introduce social capital in its gasoline sales business.

Some of their Xinjiang subsidiaries have already started to trial partnerships with local SOEs or smaller private firms. One of CNPC's Xinjiang units, PetroChina Urumqi Petrochemical Co, told the Global Times in June that it is seeking to partner with local SOEs and private companies to explore opportunities in the petrochemical industrial chain.

SOEs have the capital and technology, while private firms are more efficient and flexible, meaning that the participation of private firms can bring great vitality to Xinjiang's energy industry.

Xinjiang's private sector is showing great vitality at present, but successful private companies are mainly in the trade sector, given the region's important geographic location near Central Asia and Eastern Europe. Unsurprisingly, they are still quite weak in the industrial sector.

Many people say that the investment threshold for the energy sector is overly high, which may turn away many private firms. But leading private companies in Xinjiang have accumulated the capital to invest in energy - all they need is an opportunity.

Xinjiang Sanbao Industry Group, which has been trading industrial products with Central Asian countries for over 10 years, told the Global Times that the company is planning to invest a total of 20 billion yuan, together with a consortium of other businesses, into Xinjiang's coal industry.

Such reforms will not only benefit Xinjiang's economic development, they will also contribute to local stability.

Recent terrorist attacks have thrust Xinjiang into the headlines. An expansion of the private sector will create more jobs, and hopefully will bring stability to the region.

Also, another complaint sometimes heard in the region is that energy SOEs have used Xinjiang's resource wealth to support people in other provinces, leaving Xinjiang locals in poverty. If the development of the Xinjiang energy sector can involve more local people, especially Uyghurs, there will be fewer such misunderstandings.

The Tarim Basin - where large deposits of crude oil and natural gas are located - covers a large swath of Xinjiang's less developed southern region. Local governments there should boost private participation in the energy sector, which will create more jobs for local ethnic minorities.

In February, the Xinjiang government held a meeting to encourage mixed-ownership in the region, indicating its determination to boost the private sector. In June, another meeting was held to check the progress of reforms, and officials said that "major breakthroughs" will be reached this year.

Private firms in Xinjiang are looking at unprecedented opportunities. However, more robust private participation in the energy sector requires more than just slogans. Local governments need to take concrete steps to make sure that private capital holders are competing on a level playground.