BEIJING - The Chinese government is working on more detailed rules to promote the development of the private economy, Premier Wen Jiabao said on Monday.

At a news conference following the conclusion of the annual parliamentary session, Wen said the country aims to achieve sound development in the private sector while promoting development of the State-owned economy.

"Currently there is no problem with State-owned enterprises advancing while private ones recede," he said. "Neither does the phenomenon exist where private enterprises advance while State-owned ones recede."

Private investment makes up more than 50 percent of the total investment in fixed assets. Among industrial enterprises, the private sector has exceeded the State-owned sector in the number of firms, output value, total assets and number of employees, according to Wen.

Although the State-owned sector has a lower proportion of the total economy, it still holds the country's economic lifeline, he said.

"Constantly deepening reform of State-owned enterprises, especially through the establishment of a modern joint-stock enterprise system, also absorbs a lot of social and private capital, which is conducive to the development of the State-owned economy.

"We must unswervingly adhere to the two sectors, to boost joint development of both the State-owned economy and the private sector," he said.

To balance the country's economic structure, the State Council published 36 guidelines in May last year to create "a fair and transparent environment" for private investment and "enlarge the scope of entry for private investment".

Private investment was encouraged to enter infrastructure sectors such as transportation, water, oil, natural gas, power, mining and telecommunications, and to flow into public utilities, social utilities, financial services, commerce, trade and defense.

These guidelines lowered the threshold for the private sector, but without detailed policies, different regions and ministries carry out the guidelines in different ways, preventing them from realizing their benefits, Liu Yonghao, president of New Hope Group, told China Daily.

There are more than 8.4 million private enterprises in China, accounting for more than 74 percent of China's total enterprises. The number of private enterprises has grown at an average of 14.3 percent annually over the past five years, said Huang Mengfu, chairman of the All-China Federation of Industry and Commerce.

Their registered capital has surpassed 19 trillion yuan ($2.9 trillion) with an average growth rate of 20.1 percent every year, he said.

However, private industry will come under greater pressures in the next five years as inflation increases, labor costs rise and trade protection measures from foreign countries increase, said Huang. Moreover, "financing difficulties will still be a crucial problem".

Liu Mingkang, chairman of the China Banking Regulatory Commission, said on March 8 that the regulator will continue to encourage banks to hand out small-business loans by improving regulatory framework and risk management.

But the demand for small-business loans is still much higher than the supply from banks, leading small businesses to turn to loans with higher interest rates from non-bank financial institutions, said Katie Chen, associate analyst of Moody's Investors Service.

Chen expected that the small joint-stock commercial banks, city commercial banks, and rural financial institutions will be more active in offering small business loans.

China Daily

(China Daily 03/15/2011 page4)