New limits seen on China’s state enterprises

New limits on state-owned enterprises (SOEs) in China might create opportunities for private companies in energy and other key industries, according to an IHS report.

At an important meeting in Beijing last month, the Chinese Communist Party outlined a plan to accelerate economic reform and limit the state’s involvement in markets, the report said.

“Documents issued from China’s Third Plenum paint a picture of a market where all participants have open, fair, and equal access to compete in key industries,” said Brian Jackson, an IHS economist. The documents affirm the role of SOEs in areas characterized by natural monopolies, such as natural gas pipelines and electric power transmission. But new principles described in the documents “could result in more fair-market conditions for private enterprises, if implemented,” he said.

IHS called the effort to equalize competitive conditions in China “a major reform.” The firm said it expects the government to issue policies reflecting “the principle of a level playing field in the economy for all market participants, including foreign enterprises.”

Energy prominent

Energy is prominent in the reform agenda, IHS said.

Xizhou Zhou, senior manager, research, for the IHS China energy insight team, said, “The decision document stipulates that all energy prices that can be formed through market competition should be determined by the market, with little government intervention.”

Zhou expects further price reforms for natural-resource industries, including gas, power, and oil products, with government price-setting subsiding in competitive segments.

“The recent linking of domestic gas prices to oil prices will further progress to allow domestic gas prices to reach parity with imports,” Zhou said. “Also, the further tweaking of the oil product pricing mechanism will improve the timely reflection of global crude price movements.”

IHS said successful changes to national energy companies owning and operating critical infrastructure would allow nonstate operators to enter parts of the gas and power markets that aren’t natural monopolies.

The firm also noted an increased emphasis on environmental responsibility.

“Party leaders are clearly responding to rapidly rising public demand for better protection of air, water, and land resources,” the report said.

The concern means acceleration of trends such as switching from coal to gas and stricter enforcement of environmental regulations. It also means continuation of efforts to establish prices for carbon emissions. Carbon-trading schemes have been introduced in seven regions in coastal China, the report noted.

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