China to Roll Out Measures To Support Private Sector

WSJ.com - China to Roll Out Measures To Support Private Sector

China to Roll Out Measures
To Support Private Sector

DOW JONES NEWSWIRES
February 25, 2005 6:59 a.m.

SHANGHAI – China will support its private sector by encouraging more direct funding and lending, and by opening up national industries like power and telecommunications to more competition and private-sector capital.

The recommendations by the State Council, China's highest executive body, reflect efforts to ensure the country's private sector weathers the credit tightening and other measures imposed by the government to counter economic overheating. The recommendations, which were carried in state media Friday, are aimed at encouraging nonstate enterprises to enter different fields, including the financial and utilities sectors.

One of the measures is to "hasten reform in the monopolistic sectors of power, telecommunication, railway, civil aviation, oil and other fields, introducing competition mechanisms and allowing nonstate capital to enter these monopolistic industries and fields," said a statement posted on the Web site of the National Development and Reform Commission, China's top industry policy maker. The NDRC statement said private investment would also be encouraged in the construction and operation of utilities and infrastructures; education; scientific research; health care; culture; and sports.

The measures would also allow nonstate capital to enter industrial construction related to national defense technology, and potentially compete for related technology research and production, the NDRC said.

Private investment would also be encouraged in the restructuring and reform of state-owned enterprises, and the development of the western, northeastern and central regions of China, the NDRC said.

The recommendations state that banks should enhance lending to nonstate sectors, mainly made up of small- and medium-sized enterprises, known as SMEs, and encourages policy banks to extend re-lending and guaranteed lending to them. The government plans to speed up the development of the nation's SME stock board as part of moves to widen direct financing channels for the sector, the NDRC said.

No timeline or schedule was given on when the recommendations would be rolled out.

Earlier this month, China's chief banking regulator, Liu Mingkang, was cited by the official Xinhua News Agency as saying a pilot program aimed at encouraging more bank lending to SMEs would be launched this year.

This week Wu Xiaoling, vice governor of the central bank, was reported as saying some relaxation in lending controls could help promote nonbank lending, providing a source of funding for SMEs and individual borrowers.

SMEs are a mainstay of job creation in China, but have long faced difficulties in obtaining sufficient financing from commercial banks, which tend to extend loans to big state-owned enterprises. The challenges became more pronounced with government credit tightening since mid-2003 to slow overly rapid economic growth and money supply, but Beijing has been trying to rebalance the situation.

China launched its first stock board for SMEs in Shenzhen last year.