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China to let private investors hold up to 15 pct in state firms - report

Sunday, 10 Nov 2013 | 9:58 PM ET

SHANGHAI, Nov 11 (Reuters) - China will allow private investors to buy up to 15 percent stakes in state-own enterprises (SOEs), the official China Daily reported, as Beijing moves to leverage private funds to avoid having to bail out heavily indebted state owned firms.

Chinese leaders are gathered in Beijing this week to establish the economic blueprint for the next 10 years and the State-owned Assets Supervision and Administration Commission (SASAC), which administers more than a hundred of China's biggest state-owned companies, has said reform of SOEs as a major area of focus.

The report quoted Bai Yingzi, director of SASAC's enterprise reform division, saying that private investors could create private equity consortia to purchase direct stakes in SOEs between 10-15 percent of assets, without giving further details.

Private investors are already allowed to purchase shares in major state-owned enterprises listed on domestic stock exchanges, but state-owned entities usually retain a controlling interest.

Private and state-owned firms can currently create joint ventures in which the private share is higher than 15 percent. The report cited a joint venture between privately held industrial conglomerate Fosun Group and state-owned China National Medicine Corp in 2003, in which Fosun owned 49 percent, but described it as a "rare exception."

In June the official Xinhua news service reported that public utilities would be opened up to private investment.

Late last month, an influential think-tank, the State Council's Development Research Centre, recommended ending state-owned monopolies in the rail, oil and gas, and electricity industries, as a key reform.

Other high-level officials, including former premier Wen Jiabao, have called for state-owned banks, key financial enablers of inefficient SOEs, to be subjected to more competition.

Many economists and analysts remain sceptical that China will take more substantial steps to end SOEs' privileged market monopolies during this week's Communist Party plenum, due to a lack of consensus between conservatives and reformers.

The last time SOEs faced a major reform and restructuring programme was in the 1990s, when most of them were loss-making bureaucratic dinosaurs. These days, SOEs are more profitable.

A report by the official Xinhua news service published Monday Ministry of Finance data showing rising revenues at SOEs in 2013, with profits up 10.5 percent in the first three quarters of the year.

The better performance, however, in large part is thanks to SOEs' ability to borrow cheaply and roll over debt indefinitely.

(Reporting by Pete Sweeney; Editing by Simon Cameron-Moore)