Private funds need better access to Chinese market

Hua Hua, China Daily, Asia News Network, Beijing

Wider market access is essential to activate the huge sum of idle private capital in China, according to experts seeking to cure the economic headache.

Though non-government investment has continuously increased in the past two decades, heavy reliance on State investment to drive economic growth remains unchanged.

Statistics for recent years indicate the increase in non- government investment has lagged far behind State investment. A hefty share of non-government capital gathers dust in bank deposits, or is put into the stock market to make short-term speculations.

To achieve the approximate seven percent gross domestic product growth target during the 10th Five-Year Plan period (2001-2005), the total investment is estimated at 12 trillion yuan (US$1.45 trillion), among which at least 5 trillion yuan ($602 billion) should be contributed by the non-government economy, which includes mainly private, individual and township businesses.

Without active non-government investment, experts warned, if the current proactive fiscal policy is phased out, an investment vacuum may appear.

Though the proactive fiscal policy is to continue for some time, it is by no means a long-term policy.

In the first half of last year, the total investment in fixed assets hit 1.1899 trillion yuan ($143.361 billion), among which some 892.9 billion yuan ($107.578 billion) -- or 75 percent -- came from State-owned or State-controlled enterprises.

Then what are the factors bottlenecking the expansion of non- government investment? Experts cited the major factor as the lack of concrete measures to guide private funds into wider investment fields, especially into the infrastructure sector, which is highly monopolized by the state.

A document issued by the State Development and Planning Commission (SDPC) in February stipulated explicitly that fields open to overseas investment should allow the entrance of domestic non-government capital.

The SDPC also expressed that non-government capital is permitted to enter all sectors except for those related to State security and other classified sectors.

Though regarded as the boldest policy so far on non-government investment, it is still too abstract to energize private investment without concrete follow-up measures.

To date, non-government capital is concentrated mainly in traditional manufacturing industries, including electrical home appliances, clothing, toys and food; the service industries, including real estate, the retail and wholesale sectors; and new and high-tech industries.

But in basic industries, infrastructure industries and large- scale manufacturing industries -- such as finance, insurance, automobile, education and health care -- non-government capital encounters the most restrictions in market access.

Taking Beijing as an example, in the first seven months of last year, 70 percent of non-government investment went into the real estate sector. Meanwhile, that channeled to tap water, electricity, gas, education and health care sectors was less than 7 percent.

To enter these sectors, policy permission is just the first step. It is a complicated process to overcome obstacles fostered by old concepts and the still rigid investment mechanism.

Some may doubt the capabilities of non-government investors to play in the fields of infrastructure, financial services and automobile manufacturing, which require large-scale investment.

More than two decades' development, however, has brewed a group of powerful non-State enterprises. Among the top 100 non- State enterprises in 1998, 41 had assets of more than 500 million yuan ($60.24 million), squeezing into the ranks of large-scale enterprises.

However, in general, non-government capital is characterized by its small scale. To efficiently utilize the scattered money, local governments should explore various ways of investment, according to a research team under the SDPC.

In Zhejiang Province, the government experimented with a new investment model: The government masterminded the construction plan, then injected some investment as the starting fund. A market mechanism was introduced to widely attract private money.

In practice, there are many cases of investors' interests being hurt due to local governments' violation of contracts.

Other factors, such as a unified and transparent taxation system, are also a concern for private investors considering infrastructure investment.