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China will further encourage participation of foreign capital in SOE reform: state media
 
The State Council issues a new guideline urging state-owned enterprises to accept mixed ownership and to modernize in September 25, 2015 Photo:m.news.cntv.cn
 
China will further encourage the participation of foreign capital in the country’s ongoing state-owned enterprises (SOE) reform by streamlining procedures and loosening restrictions, a state media cited a government source as saying on Friday.
 
The Economic Information Daily, a news outlet under the Xinhua News Agency, said that China’s State-owned Assets Supervision and Administration Commission (SASAC) is currently preparing a series of policies to facilitate and encourage the participation of foreign capital in structural and mixed-ownership reform of the state-owned enterprises, one of the current focuses of policymakers. 
 
“One of the reasons to encourage the participation of foreign capital in SOE reform is that there is huge potential for foreign capital merger and acquisition, and it would become a main direction in attracting foreign capital to China,” a staff from SASAC told the Economic Information Daily. “And on the other hand, it is also necessary for SOEs to optimize their operation mechanism and inject more vitality.”
 
The source added that several local governments are now considering policies and plans for encouraging involvement of more foreign capital in SOE reforms, which would be the main direction of the future reform.
 
For example, the report said, the Shanghai municipal government recently released its “Several Opinions on Further Advancing Shanghai SASAC State-owned Enterprise Reform and Development,” which encourages the “cross regional” and “mixed-ownership” restructuring of Shanghai-based SOEs, and the participation of foreign capital and private capital in their restructuring. 
 
Yet, it is not the first time that China says it would encourage participation of foreign capital in mix-ownership reform. In June 2016, the government released the “Opinions on Establishing a Fair and Competitive Inspection System During the Establishment of a Market System” which seeks to reassure foreign investors about the fairness of China’s regulatory environment.
 
The State Council also issued the “Notice on Several Measures to Expedite Growth in Foreign Investment” last month, which states that “active use of foreign capital is a key part of China’s opening up strategy.”
 
According to the Notice, China will reduce thresholds and restrictions on foreign investment, make it easier for personnel to enter and leave the country, as well as improve the domestic investment environment, in order to “continually raise China’s advantage when it comes to attracting capital, and ensure stable growth to attract foreign investment.”
 
Mixed ownership reform of large SOEs means that SOEs which have traditionally held monopolies in many strategic industries could form joint ventures using non-state capital. It was put on the agenda during the Third Plenum of the Communist Party of China's 18th Central Committee in November 2013. 
 
Mixed ownership is the country’s latest step in its SOE reform which can be traced back to 1990s. However, SOE reform has stagnated during the past decade, while SOEs have been increasingly criticized for their low efficiency and lack of innovation compared with private sectors. 
 
In the latest move on mix ownership reform, the country’s telecoms group China Unicom, formally known as China United Network Communications Group Co Ltd, has announced to raise $11.7 billion from about a dozen investors from private sector including tech giants Alibaba Group and Tencent Holdings. China Unicom is among the first batch of SOEs slated for the mixed-ownership reforms, whose guidelines were issued in 2015. 
 
Foreign investors have already had some involvement in the mixed-ownership reform of the SOEs, with Global Logistic Properties taking a 10% stake in the partial privatization of Eastern Airline Logistics in June as a strategic investor, according to Reuters. 
 
“Attracting foreign investment will play a pivotal role in upgrading the Chinese economy and improving its ability to compete internationally,” said Bai Ming, vice-head of the international market research department of the international trade and economic research academy of the Ministry of Commerce.
 
Bai added that the use of foreign invested technology and overseas sales channels will increase the international influence of Chinese enterprises and further shore up its position as a manufacturing giant.
 
“SOE profits are state profits, and these profits should be realized to the greatest extent possible via the market, and via a modern enterprise system,” he said. 

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