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China Daily Website

Govt to court private capital

Updated: 2013-08-07 07:16
By Zheng Yangpeng ( China Daily)

Despite progress, private investors and experts said there are still obstacles in the development of the private sector, with some of the major components, such as energy, railways, finance and telecommunications, dominated by State-owned enterprises that are lukewarm to private investment.

Even Zhang Ping, the commission's former director, acknowledged the existence of a "glass door" of "invisible" policy hurdles that have constantly impeded the entry of private investment in certain industries.

In the railway sector, for example, although a few branch railway lines have been opened to private investors, the construction and operation of China's railways are still overwhelmingly dominated by China Railway Corp.

The limited progress is mainly attributed to a lack of enthusiasm at China Railway Corp. The corporation, and its predecessor, the Ministry of Railways, have and had no problem raising money because any investment was counted as government-backed and so had a very high credit rating. Introducing private capital is not only troublesome, but also forced it to concede certain power, experts said.

Private investors, too, were reluctant to participate in the railway sector because it was opaque and they were aware that even if they did invest, they would have little say in pricing and operations.

For example, in the second half of 2012, Ping An Insurance (Group) Co of China Ltd and the National Social Security Fund, two major shareholders of the Beijing-Shanghai High-speed Railway, requested permission to withdraw from the venture. The reason was not that the line was unprofitable. Rather, they said they had no say in the pricing and the corporate governance was weak.

"From the perspective of investors, market-oriented reform is a prerequisite for the private sector's engagement in these sectors," said Zhao Jian, a professor of economics and management at Beijing Jiaotong University.

Premier Li Keqiang called on July 25 for multiple fundraising sources for railway construction, including a greater role for private capital and the establishment of a railway development fund.

He also demanded various government support, such as interest subsidies, to guarantee a decent return on the investment.

China Railway Corp and the commission are now revising a specific plan to implement the reform of the railway fundraising mechanism that is scheduled to be submitted to the State Council before the end of the year, the Caixin magazine reported.

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