Feelings are mixed over mixed-ownership model

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Members of China's top political advisory body have called for detailed regulations on developing a mixed-ownership economy, aiming to ensure that private enterprises will have a say when they inject capital into State-owned enterprises.

A mixed-ownership economy, which allows non-State capital to take equity stakes in projects featuring investment by SOEs, has been a hot topic during the legislative two sessions, the most important annual event on China's political calendar.

China will speed up the development of a mixed-ownership economy by letting private capital into more State projects in the oil, railway and telecom sectors, according to the government work report delivered to the annual session of the National People's Congress.

Private capital will also be allowed to participate in areas such as banking, electricity, resource development and public utilities, the report noted.

Many political advisers said they are excited to see that SOEs are further opening up to non-State investment.

Feng Dongming, chairman of the board of Markor Investment Group Co Ltd, which has businesses covering from furniture to chemicals, said it's a very positive sign that the development of a mixed-ownership economy has been put higher on the government agenda.

"It boosts confidence of not only private entrepreneurs but also SOEs, making us aware that injecting non-State capital into SOEs is a solid option that is supported by the central government," said Feng.

But ensuring that private investors have a voice in the management of these "hybrid" companies is the top concern among political advisers.

Laws and detailed regulations governing the development of a mixed-ownership economy are being strongly supported by political advisers from SOEs and private companies.

Pan Gang, chairman and president of dairy company Inner Mongolia Yili Industrial Group Co Ltd, said that it won't necessarily be easy for private companies and SOEs to work together.

The two types of companies have "completely different" management styles and business philosophies, he said.

"Not to mention the huge difference between the sizes of SOEs and private companies. SOEs are like elephants, and in comparison private companies are like carp," said Pan.

He also pointed out that SOEs are mostly at the upper end of the industrial supply chain, engaged in businesses connected to resources and energy, while private companies are mostly at the lower end of the chain, where they focus on consumers.

"Many private companies are worried that their investments in SOEs will only serve as capital boosts. How to achieve a sustainable influence on a mixed-ownership company in the long run is uncertain," Pan said.

He Bangxi, chairman of the board of Beijing Xima Bowling Equipment Co Ltd, said: "I'd definitely invest in SOEs if there is a good project for me.

"But I'd hope that the share distribution of such a mixed-ownership company will be transparent and that as a shareholder, I can be involved in the decision-making process," he said.

Many national political advisers said that China's SOEs are obsessed with maintaining control of joint ventures, so it would be difficult for minority investors to be involved in making decisions.

Feng said developing a mixed-ownership economy requires building trust between SOEs and the holders of private capital.

Feng's company, which has a 50-50 joint venture with China Petrochemical Corp (Sinopec), said that he's seen some great progress made by SOEs.

"Since last year, when the development of a mixed-ownership economy was raised by the central government, some SOEs we've dealt with have agreed to not become the largest shareholder of joint venture projects.

"That's a major step forward. When we formed the joint venture with Sinopec in 2005, we had to split the shares half and half because neither side trusted the other to have a majority share," he said.

Detailed regulations will help build trust in such situations, he said.

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