Before allowing foreign investors to purchase shares in their
businesses key equipment manufacturers in China must first consult
with Central Government, the State Council said Thursday.
The decision is a concession to domestic critics who complain
the country has been selling off strategic companies too
cheaply.
The move could hinder one of the latest such deals in which US
private equity firm Carlyle Group wishes to buy into a top domestic
manufacturer of construction gear.
In the new rules, the first of their kind, the State Council or
Cabinet detailed China's plans to develop its industries involved
in the manufacture of equipment such as electricity generators,
ethylene production facilities, high-end steel production lines,
railway rolling stock and precision tools.
According to the State Council statement which was published in
domestic newspapers: "We will develop a group of major equipment
manufacturing conglomerates with relatively strong competitiveness
by 2010."
The rules imply the government plans to take a more active
approach in restructuring the equipment manufacturing sector,
encouraging mergers and tie-ups to form large national companies.
It has already attempted to do this, with mixed success, in other
industries such as steel.
"Large-sized and backbone equipment producers must seek the
opinion of the State Council's departments if they want to sell
stakes to foreign investors," the statement said.
In October 2005 top equipment maker Xuzhou Construction
Machinery Group agreed to sell 85 percent of its Xugong Group
Construction Machinery Co. to Carlyle for US$375 million.
Regulators have yet to approve the deal.
Officials and academics this year have criticized such sales
suggesting foreigners aim to control key industries and that some
State firms were not getting adequate prices when selling stakes to
foreigners.
The government has generally reacted by reaffirming the need for
an open economy and not by making concessions to critics.
Earlier this month Sany Corp., Xuzhou's smaller domestic rival,
said it wanted to take control of Xugong by paying at least 30
percent or even more than the Carlyle offer. But Sany has not so
far made a concrete bid and both Xugong and Carlyle say they remain
committed to their deal.
"China's equipment industry has problems including poor
innovation, reliance on foreign technology, improper structure and
weak international competitiveness," the State Council said in the
statement.
"Boosting the equipment sector is a strategic aim for our
country as it develops a sustainable economy," it adds.
Shenzhen-based economist Liu Xianfa, of the China Development
Institution, said he expected the government's efforts were to
focus on traditional industrial bases such as northeastern China,
Tianjin and Shanghai.
"China still lags behind in higher technology fields such as
numerically controlled equipment and that stands in the way of
building a more advanced economy," he said.
(Shenzhen Daily June 30, 2006)