A,Dream,Comes,True:Dreamtimes

　　 　　For three years, Weng Yifeng, President of Rui’an Huafeng Micro-Credit Co. Ltd. in Wenzhou, has dreamed of transforming his small micro-credit company worth 1 billion yuan ($157.98 million) into an established bank. In 2008, Weng and several partners set up Rui’an with a registered capital of 200 million yuan ($31 million). Limited to granting credit, the company was strictly prohibited from taking deposits, a standard practice at most banks.
　　Recent developments in China’s banking regulation, however, are making it easier for Weng and other prospective bankers to enter China’s burgeoning banking sector, an industry that for long has been monopolized by state firms. The new policy will help shatter the stranglehold on state-owned enterprises across the country to have access to financing.
　　On May 25, the China Banking Regulatory Commission (CBRC) issued follow-up opinions from a 2010 document to encourage and guide private capital. The CBRC document this time is part of the detailed rules to implement the 2010 State Council opinions. According to the CBRC document, private capital will be granted al- most equal access to the banking industry.
　　Under the new policy, Weng will face fewer difficulties in realizing his dream. He said after transforming his company into a bank, he expects a market-formed interest rate to be created, because only with market-formed interest rates, small financial institutions like his can seek better development.
　　Banking is not the only industry where monopolies will be broken. The Ministry of Railways, China Securities Regulatory Commission (CSRC), Ministry of Health and Ministry of Communications have issued detailed rules on encouraging private capital to enter monopolized industries under their supervision.
　　Relaying growth
　　“Under the current economic situation, it’s getting more and more important to mobilize capital of various types,” said Zhao Xijun, Vice President of the School of Finance of Renmin University of China.
　　China’s economy is currently in a critical stage of development: With growth continuing to slow, the economy faces restructuring, industrial upgrading and transformation of the growth pattern.
　　“Opening industries to private capital and inspiring private capital will undoubtedly have far-reaching significance in stimulating the Chinese economy, promoting the transformation of the economic growth pattern and maintaining long-term sustainable and sound development,” said Zhao.
　　Following the global financial crisis in 2008, the Chinese Government strategically launched a 4-trillion-yuan ($631.91 billion) stimulus package. Government-initiated public investment played an essential role in facilitating a quicker bounce back in the world economy. However, the economic growth was restricted by the fiscal ability of the government. Public investment is likely to cause overheated investment and surplus production capacity. In contrast, private investment is more efficient and will also be significant to solving problems involving imbalances in the Chinese economy.
　　Gu Shengzu, an economist and member of the Standing Committee of the 11th National People’s Congress, thought during the post-crisis period the practice of making private investment relay public investment is the most important strategic choice to ensure sustainable economic growth, because compared with public investment, private investment features flexible mechanisms, high efficiency, high potential, strong sustainability and facilitation to innovation and employment. Private investment will play a key role in reinvigorating the economy and realizing sustainable economic growth.
　　Private investment has contributed most to China’s total investment. According to figures from the National Development and Reform Commission, in 2011 private investment accounted for more than 65 percent of China’s total investment. Statistics from the central bank also showed that at present, private capital in China totaled 60 trillion yuan ($9.49 trillion), including 35.2 trillion yuan ($5.57 trillion) of individual savings deposit and 25 trillion yuan ($3.96 trillion) of capital from private enterprises and other sources.
　　However, most private capital has been invested in non-monopoly industries such as real estate, manufacturing and textiles, while to the more profitable industries monopolized by state capital, private investors can only covet but do nothing. But efficiency of state capital in monopoly industries is low. For example, state-owned enterprises, such as China National Petroleum Corp. and those in the power industry, have monopolized resources and the market but suffered huge losses for years, so the government has to make up for the losses with treasury funds. If allowed to enter these sectors, private capital will expand investment in these industries and bring competition to stimulate state-owned enterprises.
　　Moreover, private investment, with most of it made by small and medium-sized enterprises, has played a very important role in increasing employment. At present, private investment offers 70 percent of job opportunities in urban areas and 90 percent of newly increased jobs each year. The global financial turmoil in 2008 severely affected export-oriented enterprises in east China’s coastal areas, with many, mostly private enterprises, forced to close down. The consequent unemployment of a huge number of workers immediately caused public concerns. This shows the importance of expanding private investment in stabilizing employment. Once private capital is allowed to enter monopoly industries, they will create a huge number of job opportunities, apart from a higher economic growth rate.
　　Concerns remain
　　Despite promises from the government for change, Weng still harbors doubts. Administrative barriers blocking private capital from entering monopolized industries have not yet been broken down. And will the new policy be effectively carried out? The State Council required in February that relevant ministries and commissions should formulate detailed measures to implement the 2010 opinions on promoting the development of private investment by the end of June. As the deadline comes on June 30, will the ministries and commissions issue perfunctory measures?
　　The documents issued by various ministries and commissions, including provisions on attracting private capital to invest in railway construction by the Ministry of Railways and those on encouraging private capital to establish banks and other financial institutions by the CBRC, are all policy directives. Though many ministries and commissions declared that no “extra conditions” would be imposed on private capital, they failed to respond to some practical problems that have long plagued private capital.
　　The CSRC also said in its document that no limit would be set on private investment, but in fact, there are still “discriminative restrictions” on private capital. For example, private investors can only buy shares of securities or futures companies, but are not eligible to be controlling shareholders or set up securities or futures companies by their own.
　　Hence Gu emphasized that to ensure steady economic growth, the most urgent task is to accelerate the reform of monopoly industries, focusing on eliminating administrative barriers, lowering market access for private investment, promoting fair treatment toward private enterprises in investment approval process and supporting policies related to land, trade and taxation, and ensuring equal competition among different types of market participants.
　　However, to fundamentally dispel misgivings from private investors, the government will need to not only urge supervisory authorities to formulate effective detailed rules, but also continue to replenish more detailed supporting policies for private capital to follow.
　　“Even though private capital is free to enter the transportation infrastructure sector, such as highways and railways, it still has to face various difficulties. How to balance the relationship between the profitability feature of private capital and the public interest feature of transporting facilities will be a key to promoting the sound development of these industries,” said Wang Mengshu, a member of the Chinese Academy of Engineering.