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Anti-monopoly push may fail to woo private capital

By Hua Min (Global Times)

07:08, May 31, 2012

China will soon liberalize many industries that have long been dominated by State-owned firms in a bid to break up State monopolies and bolster the private sector amid tepid economic growth, the State-owned Assets Supervision and Administration Commission announced recently.

News of this decision was followed by a series of guidelines issued by various government bodies allowing private investors to contribute capital and assets to SOEs, who have long been hostile to non-State entities.

As the government grapples with slumping revenues, inefficient SOEs and a mountain of heavily indebted infrastructure projects, it's no surprise that planners are turning to private capital for help. Yet, the latest initiative to attract private capital into traditionally State-owned dominions is likely more of a symbolic gesture meant to indicate the government's attitude toward market-oriented reforms rather than an actual push for real change in long-monopolized realms. Without first making fundamental changes to administrative mechanisms at SOEs and moving for equitable treatment for private capital, the government can hardly guarantee a steady or substantial inflow of investor money into State-controlled sectors.

China's railway industry - one of the heavily monopolized industries the government is currently pushing to open to private investment - was 6.98 billion yuan ($1.09 billion) in the red in the first quarter, with debts accounting for 60.62 percent of the industry's assets as of the end of March, the Ministry of Railways reported on May 2. Also, a chill in the real estate sector has taken a huge bite out of land sales, which has cut into tax revenues and squeezed bank credit as local governments become more reliant on borrowing from lenders.

In the current economy, opening the door to private capital undoubtedly seems like an efficient means to stabilize the government's rocky financial status.

Unfortunately, under the newly-issued guidelines, private investors still face many roadblocks as they move into monopolized sectors. Notably, private investors are only allowed into low-end areas of the industrial chain and are restricted from being shareholders in SOEs.

As the potential for sizable returns remains low and decision-making powers remain in the hands of regulators, profit-oriented investors will be less committed to sink their money into SOEs.

If the government is truly determined to break up monopolies with the aid of private capital, it should first transform SOEs from government-capped and low-profit puppets into efficient, market-oriented players who can welcome private capital investors as equals.


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