China Issues Blueprint for State Industry Overhaul
outlookindia 2015-09-14 14:12

China's Communist Party has issued a long-awaited blueprint for overhauling bloated state industries that would retain the party's dominance in the economy.

The plan comes at a time when the government of President Xi Jinping is under pressure to reverse an economic slowdown and reduce reliance on trade and investment to drive growth.

Communist leaders have promised to give entrepreneurs and market forces a bigger role but insist state ownership will remain the core of the economy.

The plan issued late yesterday reflects the complex path the party walks in trying to develop the world's second-largest economy while preserving its monopoly on power.

It calls for state companies to face more free-market competition, become financially self-supporting and be clearly divided between commercial competitors and those that serve social purposes.

It gives no details of how individual companies will be treated and no timetable but promises a "decisive outcome" by 2020.

Rather than reducing the party's role, the plan says Beijing will "strengthen party leadership" of state companies.

It also leaves key questions unanswered, such as whether unsuccessful state companies will be allowed to go bankrupt and how much their monopolies and other privileges will be cut back.

The plan promises to promote "mixed ownership," the party's term for allowing outside investors to buy stakes in state companies, but gives no indication whether they would be allowed any management control.

Despite three decades of market-oriented reform, most of China's industries are dominated or entirely controlled by state companies.

That includes banking, oil and gas, insurance, air travel, telecoms, steel production and coal mining.

Most lending by state banks goes to government companies while entrepreneurs who generate China's new jobs and wealth rely mostly on an informal underground credit market.

Pressure for change has mounted as economic growth tumbled to a two-decade low of 7.4 per cent last year and is forecast to fall further to about 7 per cent this year.

Some analysts say China will be unable to hit even that level without government stimulus after manufacturing and other activity were weaker than expected in July and August.

Regulators have announced a series of changes including eliminating a ban on outright foreign ownership of e-commerce companies.
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