Guo Lihong

The problem of access of non-public investment to infrastructure arose from the need for development, while its solution hinges on the extent of reform. Governments at all levels are unanimously enthusiastic about economic growth but differ on how to stimulate growth with reform.

In the 19 years from 1979 to 1997, non-public investment increased by 27.3% annually on average, almost nine percentage points over the corresponding figure for public investment. But a reversal occurred in 1998 with the public investment 11.6 percentage points ahead of non-public investment. In other words, government enlarged pro-active fiscal investment, while the non-public investment has not been launched ever since 1998. In fact, statistical data on investment of various localities over these years highlight from a side aspect the progress of reform in these areas.

Instead of dwelling on general problems plaguing non-public investments, such as difficulties in financing or obtaining bank loans, this article will focus on infrastructure investment and analyze the major trouble for non-public capital.

I. The Conceptual barrier (barrier to market access)

1. Lukewarm attitude of central departments in charge of overall economic affairs

The State Planning Commission in early 2000 adopted the most liberal attitude, it announced the "abolition of forbidden areas to non-public investment with the exception of those related to state security or in need of state monopoly, all the other areas shall open to non-public investments."

At first glance, it represented a giant step forward. But to the non-public capital, this perhaps proves to be no more than lip service. The announcement says "access to all areas except those out of bounds (to non-public investment)". No one knows where on earth the bounds are.

For acts to be encouraged or forbidden, there are two approaches -- exclusive or exhaustive listings of the dos and don'ts. The exhaustive approach seems to be better for Chinese culture of institution. The exclusive approach was first adopted in late 2000. It appeared in the "Regulations for the Zhongguancun Sci-tech Park" adopted by the Standing Committee of the People's Congress of Beijing Municipality, "any individuals or organizations may engage in activities not explicitly forbidden by laws, decrees and regulations in the Zhongguancun Sci-tech Park". This was a legal breakthrough.

Yet the exhaustive approach would expose underlying conceptual problems. The State Economic and Trade Commission recently pointed out: "Large-scale readjustments will begin from 2001 in 196 industrial sectors nationwide. The guideline demands that State-owned enterprises (SOEs) quit from the competitive sectors, giving way to private enterprises, shareholding enterprises and foreign-funded enterprises. In line with the deployment of the Central Government, the readjustment plan for the operations scope for the SOEs is as follows: 1. Continued State monopoly will be maintained in 15 industries, including the national security-related industries, such as military industry, minting and aerospace etc., resource industries that have direct bearing on the nation's economy and the people's livelihood, such as oil, natural gas, forestry, and public utilities, such as tap water, electricity, gas. 2. Another 35 industries have been designated for state dominance rather than monopoly, i.e. state-owned enterprises control over large projects and non-public investments are allowed to participate in the small and medium-sized projects. They include major resource industries such as coal, iron ore, cement and non-ferrous metals; high-tech industries related to comprehensive national strength or competitiveness like computer, new materials, and bioengineering; and growing pillar industries such as electronics, motor vehicles, petrochemical. 3. All the other remaining 146 industries are general competitive industries, consumer goods and services in particular, which shall be readjusted through market mechanism and the non-public economy will play the leading role, accompanied by an orderly and gradual exit of SOEs.

As for the industries under the monopoly of state-owned enterprises, non-public enterprises (including those from overseas) have already been operating the public utilities. It is suggested that in the projects involving the transmission of natural gas and electricity from western to eastern regions, foreign investors are allowed sole ownership or holding the majority of shares. How shall we justify these contradictions? In industries where "large-sized projects should be run by SOEs", such as cement, electronics, computer, motor vehicles and new materials, many of them are operated by the foreign-funded large enterprises. Are we going to confiscate them or buy them back?

In sum, the central departments should work out as soon as possible a rational and feasible catalogue, which should include all the commitments we have made in the WTO-entry negotiations. It should be made clear whatever fields explicitly accessible to foreign capital should first be open to domestic enterprises of the non-public sectors. On opening up financial services, many experts have put forward such a suggestion. Other fields should be treated likewise.

2. Conceptual obstacles on the part of local governments and SOE staff and workers

Local governments have no qualms about encouraging non-public sectors to invest in competitive fields because they will compete with enterprises from other localities. For example, the rise of private textile enterprises in the villages and towns of the east coastal Jiangsu and Zhejiang Provinces will only squeeze out State-owned textile mills in Beijing and Xi’an, and the governments in Jiangsu and Zhejiang may be happy to enjoy the fruits of such competition.

But it is another story in the field of infrastructure. Local State-owned enterprises would first bear the brunt of competition resulted from investment by the non-public sectors, whose efficiency has been universally acknowledged to be much higher than the investment from the state-owned enterprises. The result of rivalry is self-evident. Palm or back of the hand, it's all one's flesh and blood. Will local governments discriminate against one in favor of the other? The example of Quanzhou City in the east coastal region gives us a clue. When the local Minliu (Celebrity) Company, which had successfully built a bridge in Citong County, intended to invest in building a cross-sea bridge in Quanzhou, it encountered visible and invisible resistance from the relevant local government departments. It even occurred in Quanzhou where non-public economy is highly developed, the situation in other cities could be easily imagined. On non-discrimination against the non-public sector, perhaps only the local governments in Wenzhou and Taizhou cities of Zhejiang Province have been adhering to the principle of "three favorable" (i.e. whether a project is favorable for enhancing economic growth, national strength and the people's living standards) as the yardstick for choice between State and non-state enterprises.

 Last year, Xinzhou District Government of Wuhan Municipality, on inviting tenders for enlarging a waterworks with a daily production of five tons of water and related piping and networks, turned to a domestic bidder from the non-public sector (the Wuhan Haida Company) when overseas enterprises demanded too high a price. Negotiations stalled at the last moment over the issue of whether the company shall become the majority shareholder of the water plant. Skepticism of some staff and workers triggered off a heated debate in the district and the municipality. Finally, the Haida Company backed out.

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