Potential of private sector

PRIVATE INVESTMENT IS PLAYING AN INCREAsingly larger role in China’s overall investment landscape, but the economy is yet to become open enough to unlock the full potential of private investors.

The National Development and Reform Commission said on Monday that the ratio of private capital in total social fixedasset investment rose from 55.9 percent in 2010 to 61.4 percent in 2012, and had risen still further to 63.7 percent in the first half of this year.

China has been making solid headway in opening-up its economy to non-State investors. In some areas, such as nonmetallic mining and equipment making, about 90 percent of the total investment was private in the first half of this year.

A milestone guideline, the so-called 36 Clauses, released in 2005, encouraged private investors to enter some largely State-controlled fields, such as transportation, energy, telecommunications, finance, medical service and education.

But the pace of liberalization was slow. So the government released another guideline in 2010, called the New 36 Clauses, in a bid to renew that drive. However, during the global financial crisis the authorities were forced to launch a massive stimulus package. The stimulus capital bailed out the State enterprises and made them even more powerful.

Private enterprises were sidelined, which was against the country’s commitment to building a more diversified economic structure accommodating all types of ownerships.

The latest official figures show that the process of economic opening-up is still going on and the private sector has secured a larger share in some areas as a result of that meaningful drive.

The problem is that in some key areas, such as finance and civil facilities, the pace of opening-up remains slow. In 2008, private investment in the electricity and thermal power sector was only 13.6 percent in terms of fixed-asset investment, and only 9.6 percent in the financial industry.

It is evident that without efforts to implement them, favorable guidelines alone will fail to bring about the desired results.