The central government is drafting a document to promote the development of the private sector, although institutional barriers for non-public industries in China are unlikely to be terminated with the new circular.

"In a sense, the new document is to regulate and unify new beneficial policies for the private sector released by different government departments or provinces, instead of being a final solution to all problems being faced by non-public economies," said private economy specialist Wang Yuanjing.

Wang is a senior research fellow with the Investment Research Institute under the National Development and Reform Commission (NDRC).

The NDRC is reportedly drafting the document, named Principles to Promote the Development of Private Economies.

According to an official with the Department of Small and Medium-sized Enterprises (SMEs) Management under NDRC, a draft of the document has been finished and the department is inviting feedback among different government departments and social organizations.

The official only identified himself as Gu. He said: "It will be officially released by the State Council after the feedback is merged into the document."

Insiders revealed that the document consists of a reiteration of the principle that all sectors to be opened to foreign investors should be opened to domestic private investment, which was firstly stressed by former Premier Zhu Rongji.

The document will push the principle in different sectors, which means it will offer detailed opening up conditions and timetables for different industries. As manufacturing has been virtually opened to private sectors for years, the focus of the document is in the sectors of infrastructure, education, medical services and telecommunications.

The draft has also reviewed current laws and regulations that contradict the principle of opening most sectors to private investment. It will urge the people's congresses at different levels, government departments and local governments to abolish or revise these stipulations.

The document - if released - will be the newest step in China's elite-led reform, which encourages the growth of private sectors.

The 16th National Party Congress (NPC), which was held in November, encouraged the further promotion of private economies and the acceptance of the private sector's elite into the Communist Party of China (CPC).

Government statistics suggest that China's private sector has experienced robust development in recent years. More than 129,900 private enterprises were registered during the first half of 2002, up 24.78 per cent over the same period of the previous year.

In 2001, private enterprises achieved a production value of 1.97 trillion yuan (US$237.9 billion), contributing to 21 per cent of China's gross domestic product, according to the National Bureau of Statistics.

In early August, the new leadership declared that the process of amending China's Constitution will be launched in October at the Third Plenary Meeting of the CPC's Central Committee. A core part of the revision is to add the protection of private property into China's Constitution.

Since the 16th NPC, provincial governments have begun to compete with each other to promote private economies and the opening of previously government-monopolized sectors to private investment.

"In this situation, it is very necessary to work out a circular to unify the degree and conditions of the opening up to private sectors, otherwise disorder will appear," Wang said.

On the other hand, the focus of private investment has also been shifted from manufacturing to infrastructure, education, medical services and other State-monopolized sectors. Compared with manufacturing, there are not sufficient regulations concerning private accession in these fields.

"Therefore, a document released by the State Council to clarify how to open these sectors to private sectors is urgently needed now," Wang said.Another important role of the expected document is to help eliminate previous policies and laws prejudicing private sectors.

Although opening all competitive fields to private sectors has become a major principle, many previous laws and government regulations still block such moves.

"According to the legislative process, the document (drafted by us) cannot annul previous laws and regulations, but it can promote their abolishment," Gu said.

Insiders say the new document also involves the reform of China's investment system and the current ratification system for major investments might be abolished.

Despite the new policy, however, institutional barriers to block private economies remain, according to economists.

No one prohibits banks from lending to SMEs, which are mostly privately owned, but banks naturally avoid lending to private firms from the fear that their credit records might be questionable, said Zhang Shuguang, president of the Beijing-based private think-tank Unirule Institute.

In addition, after many sectors are legally opened to private firms, problems like how to fairly and transparently trade assets appear, Wang said.

China needs more than one or two documents marking the opening up of fields to private sectors, Wang added. It requires a whole system to fuel the development of private sectors and safeguard the property rights of private investors, Wang said.

(Business Weekly 09/16/2003 page3)