Monopoly and Privatization

Just saying good-bye to the year 2006, companies are closing
their books for preparing the financial report to shareholders,
and governments are busy in issuing new plans, schedules and
policies for the year 2007 ahead.
    Li Rongrong, Director of the State-owned Assets Supervision
and Administration Commission (SASAC) of the State Council,
comments in a press conference that the central government of
China will mainly control seven industries including the
petroleum and petrochemical industry. SASAC, which is a
department of the central government, manages 161 state-owned
companies that include the five leading petrochemical companies
- CNPC, Sinopec Group, CNOOC, Sinochem and ChemChina. It is
forecast the 161 companies will reach a profit of RMB720 billion
in 2006, with sales of RMB8 000 billion. The second index that
will be used for checking these central companies in the coming
years is to improve the inner quality themselves. In addition
to petroleum and petrochemicals, the other six industries that
shall be absolutely controlled by state-owned companies are
military production, power generation and transmission,
electronic communications, coal, air transport and naval
transport. More than 40 SASAC-managed companies are involved in
these seven industries, in which the state-owned equity
currently amounts to 82%, contributing 79% of the total profit
of SASAC.
    SASAC plans to help and develop 30 - 50 enterprise groups
with an international competitive edge by the year 2010.
State-owned assets are driven to concentrate on important
industries and key economic ranges concerned with the safety of
the nation. As for the SASAC companies who operate business in
developing petroleum and natural gas and other resources, the
state-owned equity shall remain either the sole or the majority
shareholder. The SASAC companies doing business in
petrochemical downstream products are encouraged to merge and
reform by absorbing non-state-owned equity or foreign funding,
actualizing diversified investors and shareholders.
    SASAC will retain stronger control in the basic and pillar
industries such as equipment manufacture, auto manufacture,
electronic information, architecture/construction, iron &
steel, metals, chemicals and scientific and technology, and will
remain constant affection in other industries including
business and trade, investment, medicine, agriculture and
construction materials.
    As to the question of whether that ‘stronger control’ is
equal to ‘monopolization’, no further comments are given. The
local petroleum and natural gas reserves shall surely be
controlled by state-owned equity. Private firms can participate
fairly and freely in the downstream sectors such as oil products
and chemicals. An association was set up this week among 138
local private companies doing business in prepared oil for the
association will seek a fair position among the petroleum
production chain monopolized by local and global giants. Some
analysts think the association aims to integrate 138 companies
into a huge network and then to sell a good price. But if the
petroleum and gas market cannot be really opened up, any such
association is merely a label.
   My opinion, based on my own experience, is that the number
of state-owned companies is becoming smaller and private firms
are absorbing a larger and larger share. Nowadays citizens of
China are no longer relying on state owned enterprises to ensure
their living.

Zhong Weike
December 21st, 2006