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Wed, Dec 20, 2006 - Page 10 News List

China restricts foreign stake in seven industries

CRITICAL SECTORS Faced with demands for more economic liberalization, Beijing stressed the need to maintain state control over seven vital industries

AFP , BEIJING

China yesterday announced that seven industries had been identified as critical to the nation's economic security and would remain under strict government control, limiting foreign participation.

The defense, power, oil, tele-coms, mineral resources, civil avia-tion and shipping industries were "economic lifelines" too vital to surrender control over, China's State Assets Supervision and Administration Commission said.

"In the industrial sectors that concern national security and also are related to the economic lifeline of the country, the central, state-owned enterprises must have the ability to exercise control," commission Chairman Li Rongrong (李榮融) told a news conference.

Specific list

Although China has long maintained a firm grip on investment and foreign participation in those sectors, the state-run China Daily newspaper said it marked the first time authorities had detailed such a specific list.

Li said the state should retain sole ownership of companies engaged in those industries, except for mineral resources, aviation and shipping, in which a controlling state stake would suffice.

He also spelled out plans to reform and consolidate China's once tottering state-owned sector into a robust collection of industries that are competitive internationally while still under state control.

"In these sectors, state-owned assets should expand in volume and optimize in structure, and some key enterprises should grow into leading world businesses," the commission chairman said.

State-owned enterprises [SOE] were famous under the pre-reform communist model for their huge inefficiencies, but which nevertheless provided nearly cradle-to-grave employment and social security for millions of employees.

Under the new system, efficiency and competitiveness would be the top priority, Li said.

New outlook

"The leadership teams of the central SOEs have taken a brand-new outlook, and pragmatism, solidarity and innovation have become the mainstream," Li said.

The number of state-owned enterprises owned and controlled by the central government has shrunk from 196 to 161 over the past three years and that number is seen dropping to between 80 and 100 by 2010, Li said.

By 2010, between 30 and 50 of those enterprises will be highly competitive and innovative firms, he said.

China's announcement comes amid recent fierce debate in Bei-jing over the future thrust of economic reforms, with some local officials worried that the nation and its firms were losing out to intense competition from multinational firms.

Foreign pressure

Meanwhile, foreign firms and governments -- eager to tap into the wealth associated with China's rapid modernization -- have continued to heap pressure on the nation to open its economy further.

A high-powered US delegation led by Treasury Secretary Henry Paulson visited China last week to lobby the Chinese leadership into opening more of the economy to foreign competition.

Paulson and his entourage, made up of seven members of US President George W. Bush's Cabinet, said China needed to move much faster on market liberalization but they received no commitments from the Chinese.

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