In an effort to diversify investment in State-owned enterprises, the State Council has rolled out the red carpet to domestic and foreign capital.

The goal is to attract more investors for enterprises that fall directly under the umbrella of the State Council and ultimately speed up their shareholding restructure.

"Our efforts on central SOEs shareholding restructuring paid off in 2004," said Li Rongrong, minister of the State-Owned Assets Supervision and Administration Commission (SASAC), the watchdog that acts as the State owner of central SOEs.

"And deepening SOE's structural reform remains the highlight for the coming year," Li told an SOE work conference in Beijing on Monday.

Presently, 14 central SOEs, such as the China National Aviation Shareholding Company and Shenhua Group, have set up shareholding structures involving 120 billion yuan (US$14.5 billion) in State assets.

Profits from those 14 central SOEs are expected to top 30 billion yuan (US$3.6 billion) in 2004.

By September, there were 168 domestic companies under the control of central SOEs. Total share capital accounted for 33.8 percent of the overall share capital among domestically listed companies.

"We are thinking of introducing foreign investors and cooperating with some competitive private enterprises to achieve the diversification of our shareholders," Ji Xiaonan, president of the supervisory committee of the SASAC, told China Daily in a sideline interview.

There are, however, other challenges to contend with.

"Finding more niche markets is a pressing problem for central SOEs after tariffs on more industries are further lowered in line with China's commitment to the World Trade Organization," Ji said.

Equity swaps between central and local enterprises will be encouraged to deepen the shareholding restructuring in 2005.

At the same time, free market schemes will be used to improve the capital structure of central SOEs, especially on power, telecommunications and aviation sectors.

"We are considering choosing 20 to 30 wholly owned SOEs to introduce boards of directors as pilot programs," said Li Rongrong, "those wholly owned SOEs will be subjected to corporate law."

When the economic picture for next year is considered, Li said: "China's economy as well as that of the world will maintain a strong momentum in 2005, creating a good environment for central SOEs' reform."

But the depreciation of the US dollar and the fluctuation of the crude oil prices on the international market is likely to have a negative impact."

Moreover, the overloaded transportation system and shortages in the supply of coal, crude oil and power may create a bottleneck in SOE development.

(China Daily December 15, 2004)