"The government is drafting policies to stimulate non-State firms to either purchase, rent or lease State enterprises," said Ma Jiantang, director of the General Department under the State Economic and Trade Commission.

Sources said the soon-to-be released preferential policies may include reduced tax levels, lower standards for market entry and easier access to banking services.

Some local governments have already adopted preferential policies to encourage non-State firms to take over State assets.

The government of Yunnan Province, for instance, has pledged three-year tax cuts and tax exemptions for non-State firms that merge or acquire small and medium-sized State companies.

Analysts said the move reflects the State's desire to withdraw from certain industries to create a fair and open market.

"Non-State firms are important forces in promoting the reform of State enterprises," said Wang Zhongmin, an economist from the commission's Economic Research and Consulting Centre.

According to Wang, it is important to encourage non-State firms to manage State equities in a competitive market, especially after China's entry into the World Trade Organization (WTO), which requires minimal State involvement.

Experts said preferential policies will also create a better environment for the development of non-State firms.

Although non-State enterprises have played an important role in the national economy - accounting for more than 60 per cent of the nation's gross domestic product (GDP) and more than 80 per cent of GDP in South and East China's Jiangsu, Zhejiang, Fujian and Guangdong provinces - it is still hard for them to gain approval to annex or acquire State companies.

Non-State firms find it hard to finance mergers, because they have difficulty obtaining loans from State-owned banks and gaining approval to list on the stock market.

Hai Wen, deputy director of the China Center for Economic Research at Peking University, said the government is moving in the right direction.

He supported moves such as clearing market entry barriers for non-State firms and establishing a level-playing field for both non-State and State firms.

"But the State should do more to shift its emphasis from State firms to better servicing non-State companies, through staff training and providing guarantees for loans," he said.

(China Daily 02/05/01)