China broadens private capital access to public sector

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China broadens private capital access to public sector

(Xinhua) 20:24, October 12, 2013

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In a renewed push to improve public services and infrastructure, governments across China are soliciting private investment and expertise in sectors ranging from transportation to sewage treatment.

The move will give private players a larger share of coveted business once either managed by governments or dominated by state-owned companies.

Sound Group, a Beijing-based environmental solution provider, signed a contract in mid-August with Beijing Water Authority to revamp a sewage treatment plant in the city's southeastern suburbs. Under the agreement, Sound Group will invest 330 million yuan (53.92 million U.S. dollars) to expand the plant's sewage treatment capacity from 20,000 tons per day to 80,000 in 2015.

After the expansion, the company will operate the facility for 25 years, with its revenues coming from treatment fees charged to local residents.

The contract came after Beijing announced in late July its decision to seek one third of investment in a slew of public projects from the private sector.

According to the Beijing Municipal Commission of Development and Reform, the government plans to raise 130 billion yuan from private investors for 126 projects ranging from public transportation to waste disposal and heating. Total investment in these projects stands at 338 billion yuan.

Yang Xuhui, an official with the commission, said that the move is the government's latest effort to transform government functions, improve public services and boost the local economy.

In a similar move, east China's Jiangxi Province plans to seek 162.4 billion yuan in private funding to finance 200 infrastructure and utility projects. Private capital will account for more than 40 percent of total spending.

Private capital has also been used in building roads on the rugged terrain in southwest China's Sichuan Province. Local government statistics show that as of August, a total of 260 billion yuan in private investment has funded construction of 3,154 km of highway in the province.

The world's second-largest economy has accelerated its pace in opening sectors previously reserved for state players ahead of a major Party summit in November. The State Council, China's cabinet, issued a guideline in late September to encourage local governments to purchase public services from companies and social organizations.

Analysts say transforming government functions, promoting private enterprises and greater opening of the service sector will be high on the government's reform agenda at the Third Plenary Session of the 18th Central Committee of the Communist Party of China.

"So far, infrastructure and utility projects have been heavily dominated by government investment, so there is great potential for private business to invest and make a difference," said Fu Tao, Director of Tsinghua University's Water Policy Research Center.

"Companies with expertise will deliver better services for residents and stimulate competition," Fu said, adding that opening these sectors to private players will enhance market efficiency.

Yet despite repeated calls over the years for a level playing field and government policies to encourage outsourcing of services, some private companies said their chances of clinching deals with local governments remain slim.

"Oftentimes, private firms have been discriminated against in bidding for these projects, even though authorities said we were granted equal status in market access," said an executive from a private company that builds rail for subway systems.

The executive told Xinhua that a truly merit-based evaluation should be enforced when governments consider candidates for investing in and operating utility projects.

In response to such concerns, the Beijing Municipal Commission of Development and Reform said in late July that private and state companies will enjoy equal status in land, prices, investment returns and infrastructure support.

The commission also said it will work with other regulatory organs to formulate standards and rules governing market eligibility, service quality and oversight.

The Beijing municipal government also vowed to adhere to market-based mechanisms in running infrastructure and utility projects in the future.

"A level playing field is crucial for the recovery in growth and economic restructuring," said Cai Hongbin, dean of Peking University's Guanghua School of Management.

"In addition to helping cash-strapped governments fund much-needed infrastructure projects, private companies also have an edge in technology and are efficient in delivering services," Cai said.

Chen Yuyu, another professor at the Guanghua School of Management, said that the upgrading of the Chinese economy requires governments to redefine their roles in market-based reforms.

"The role of a government should be mobilizing market players to enhance public services," Chen said. "Governments should be reformed to facilitate market activities and provide sufficient oversight."