What are the key sectors critical to national security and the economic lifeline of China?

The answer, given yesterday, is: armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation and shipping industries where the State must have "absolute control," according to a senior official.

It was the first time an explicit list was released of "strategically important sectors," whose definition has been vague since the late 1990s.

"State capital must play a leading role in these sectors, which are the vital arteries of the national economy and essential to national security," State Assets Supervision and Administration Commission (SASAC) Chairman Li Rongrong said yesterday.

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

Li is today scheduled to address a press conference arranged by the State Council Information Office to explain SASAC's progress and reform of State-owned enterprises (SOEs).

SASAC anticipates that between 30 and 50 large business groups capable of competing globally would emerge from the country's State businesses by 2010, according to earlier reports.

The commission was set up by the State Council three years ago to preserve, and enhance, the value of central SOEs.

Explaining the new guidelines on SOE reform published yesterday, Li said that the State should solely own, or have a majority share in, enterprises engaged in power generation and distribution, oil, petrochemicals and natural gas, telecommunications and armaments.

The State must also have a controlling stake in the coal, aviation and shipping industries, he said.

Reform and restructuring should be accelerated in SOEs engaged in the downstream petrochemical sector and in value-added telecom services, to allow injection of private or foreign capital, Li said.

Central SOEs should also become heavyweights in sectors including machinery, automobiles, IT, construction, iron and steel, and non-ferrous metals, he added.

Li said the government will strive to enhance the "vitality and competitiveness" of State firms by diversifying their ownership through share-holding reform, strategic investors, restructuring or listing.

In the next few years, the number of central SOEs would be whittled to 80-100 from the current 161 through mergers, and all struggling SOEs would exit the market by 2008, Li said.

The 161 enterprises under SASAC raked in sales of 3.7 trillion yuan (US$473.8 billion) in the first half of the year, a year-on-year increase of 20.6 per cent. Of them, at least 40 are engaged in the seven key sectors listed yesterday and their total assets represent three quarters of all central SOEs.

Li Zhaoxi, deputy chief of the Enterprise Research Institute affiliated to the State Council Development Research Centre, yesterday said that by explicitly publishing the "key sectors," State capital can be channelled to priority industries and retreat from non-essential areas.

This will facilitate the opening of those areas and speed up the reform of SOEs, he said.

Shao Ning, vice-chairman of SASAC, said that compared with other State firms, reforms of central SOEs have been relatively slow; and will be accelerated through regrouping and structural readjustment.

(China Daily 12/19/2006 page1)