FT.com / World / Asia-Pacific - China legalises private investment

FT.com / World / Asia-Pacific - China legalises private investment

China legalises private investment
>By Richard McGregor in Beijing
>Published: February 25 2005 18:33 | Last updated: February 25 2005 18:33

China has opened up a number of state-owned and once-strategic sectors of its economy to local and foreign private investment in a decision which will extend the role of entrepreneurs in industries long monopolised by the government.

The sweeping reform, announced in a policy document released by the State Council, China's cabinet will legalise private investment in sectors including power, rail, aviation and oil.

Private investment will now also be allowed in the growing local defence industries, including military research companies and and weapons manufacturers, the document said.

“I think they want to shake up some of these industries, and if they can do that with some private money and private thinking, that's probably the plan," said Patrick Norton, a lawyer with O'Melveny & Meyers in Beijing.

As is often the case in China, the document will provide legal cover for a series of existing investments in sectors that are officially off-limits to private capital, but where in fact private capital has already begun to play an unobtrusive role.

The new rules will strengthen a loose, and sometimes non-existent, legal framework. They will be particularly welcome to local entrepreneurs, whose investments can easily be threatened by arbitrary administrative fiat.

China's private entrepreneurs have long complained that they are discriminated against, claiming they enjoy fewer rights and opportunities than either the Chinese state sector or foreign investors.

The State Council has attempted to rectify this in the new document, with a rule giving local entrepreneurs the same rights as foreign investors, while also putting them on level terms for finance, tax and rights for land-use rights with the state.

Entrepreneurs will be allowed into any industries unless they are specifically excluded, the new document says. The policy is not expected to lead to a rush of large investments, and entrepreneurs will not necessarily allowed to own majority stakes in all sectors.

Chinese corporate law will set the limits of ownership in different sectors, said Yi Xianrong, Chinese Academy of Social Sciences. However, the new policy further extends the recognition and protection of private property and interests which was begun by the ruling Communist party in late 2002.

Although many of China's large state-owned enterprises have thrived in the high-growth economy in the last two years, the private sector continues to provide most of the stimulus for the creation of new jobs.

The Chinese government estimates that the private sector now accounts for a third of the Chinese economy, up from less than 1 per cent in 1978. Analysts say the private sector's share is much higher than official figures suggest.

However, assessing the privates sector share is complicated by the opaque ownership of many companies and their mixed shareholdings structures.


Find this article at: