China's Seven Crucial Industries -- Be Careful
Today's Wall Street Journal has an article entitled, "China Plans to Keep Tight Control Over Seven Crucial Sectors," reporting on those industry sectors over which "China plans to keep an 'absolute ability to control.'"
CCTV reports that China's State-Owned Assets Supervision and Administration Commission has said it plans to cut the number of state firms almost in half by 2010, but keep a "tight hold on critical areas: military industry, power and the power grid, petrochemicals and oil, telecommunications, coal, civil aviation and shipping." The report did not detail the types of control Beijing will exercise over these sectors.
These seven industries (to which I would add media) are likely to be the most difficult for foreign business involvement.
Comments (11)
Read through and enter the discussion by using the form at the endTherese - December 19, 2006 5:25 PM
Recalling the Catalogue Guiding Foreign Investment (Chinese: http://www.china.com.cn/chinese/PI-c/726125.htm English: http://www1.cei.gov.cn/ce/index/report/cep7/guid2004.htm ), that hardly comes as a surprise -- IIRC, power grids, military, and telecom are all on the list of prohibited from foreign investment and the rest are on the list of restricted from foreign investment.
Romain Guerel (From Beijing) - December 19, 2006 5:29 PM
I am surprised that they do not include the banking sector. If the WTO allows foreign banks to get into the Chinese market (including now for retail banking), it is still very difficult for Foreign banks to get control of State banks (Cf: Guangdong Development Bank. Who controls State banks can control the economic policy of the country. This sector is even more sensitive than the ones you mention.
China Law Blog - December 19, 2006 5:33 PM
Therese --
Thanks for checking in and thanks for raising a very good point. The funny thing is that as I was reading these I was thinking of how some of them (in particular, the military industry) are pretty much excluded. But, I then decided it would get hopelessly complicated if I started talking about this because there are some aspects that are not really excluded. But, now that I see how you handled it, I realize I should have done the very same thing.
China Law Blog - December 19, 2006 5:43 PM
Mr. Guerel --
With all of its various WTO commitments, even if China wanted to keep a tight hold on its banking sector (and I agree with you that it does), I do not think they would be mentioning this.
Joseph Wang - December 20, 2006 2:13 PM
Something that needs to be mentioned is that these seven sectors are the sectors for which the Chinese government wants to limit foreign investment, but also domestic private investment. This is probably why banking isn't mentioned because while the state may want to limit foreign ownership, it probably also wants to have the option of having large amounts of domestic private ownership.
The type of control that the state probably wants to keep is majority ownership, with very little private ownership.
The other thing to mention is the "half-glass full" element of this. If these are the seven sectors in which the government wants to keep public ownership, then presumably anything outside of these seven areas is open to private capital.
Joseph Wang - December 20, 2006 2:25 PM
The other interesting thing is that SASAC mentioned that the state will inject capital into these key sectors to maintain control. This is a reversal of long standing PRC policy in which the state hasn't directly injected capital into the SOE's. SOE's have been financed through bank loans, which has caused NPL problems.
Now the that banks are moving to commercial operations, it looks like what will happen is that in these seven sectors, the state will inject capital directly, and outside of these seven sectors, the state won't, and SOE's outside of these seven sectors will raise capital through the capital markets.
Joseph Wang - December 20, 2006 3:56 PM
Ugghhh.... I can't seem to trace the original source of the quote to figure out what SASAC actually said. All of the quotes I've seen seem to originate with China Daily and I don't trust China Daily to report anything accurately.
Something that is important to mention is that in China there is a distinction between SOE's owned by the Central Government and SOE's owned by the provincial/local governments, and the SOE's in seven industries are somewhat unusual for being owned by the Central Government rather than by the provincial/local governments. SASAC plays a dual role by being the main shareholder of the central SOE's and also the regulator for the provincial/local SOE's.
But I have no idea at this point what SASAC actually said.
Therese - December 20, 2006 6:05 PM
Joseph --
Here is the original and some answers to questions about it.
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http://www.jngzw.gov.cn/Article/ShowArticle.asp?ArticleID=448
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Joseph Wang - December 20, 2006 7:49 PM
Thanks. I found those earlier, but those don't match the China Daily article at all. Both documents define key industries as:
1) those involving national security
2) those involving mineral extraction
3) those involving public goods and services
4) those involving basic development of high technology
It's a different and much vaguer list than the one that China Daily presents.
China Law Blog - December 21, 2006 12:35 AM
Mr. Wang/Therese --
This whole thing is just so vague. Interesting to me how nobody has picked up on the goal of reducing State Owned Enterprises by half by 2010.
Therese - December 21, 2006 5:13 PM
Joseph --
Hm, true. (That's what I get for not fully reading it myself. ;) This seems to be more on line with what was written in CD:
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http://news.xinhuanet.com/fortune/2006-12/18/content_5502762.htm
Specifically:
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