Sinopec's policy opens doors to private investment

It wasn't surprising that China Petroleum & Chemical Corp (Sinopec) has announced plans to open up its domestic marketing and distribution operations to private investors.

Sinopecis allowing in private investors

China to diversify SOE shareholding

The announcement came soon after the central government vowed to promote mixed ownership and increase the role of private investment in the economy. Sinopec's move was the first step, and a big one, toward ending the dominance of large State-owned enterprises.

Despite China's miraculous economic emergence over the past 30 years or so, many important sectors are still dominated by about 100 centrally administered SOEs.

As a result, many complain about unnecessary bureaucracy and inefficiency and the need for market forces to play a greater role.

So the planned restructuring at Sinopec should also serve as a pilot program for SOE reform by giving market forces a greater role. That's good news for Chinese business generally.

The participants and terms of the partial privatization remain unclear, except that a limit of 30 percent will be put on total private shareholding.

This gradual approach is also welcome. Reform of the SOEs is essential if China's economic progress is to continue at a healthy pace. But evolutionary rather than revolutionary change is far more appropriate to mitigate fears of the unknown and cement lasting modernization.

It's Sinopec's retail sales business that could prove attractive to the private sector, because it's far less capital-intensive than oil exploration and refining.

Sinopec and China National Petroleum Corp, also State-owned, own just less than half of the gasoline stations in China. Smaller private investors may now be eyeing many of these as part of their business expansion plans.

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