More sectors previously out of bounds to private investors, even national defense, will soon be opened up to them, according to a document released by the State Council yesterday.

In what appears to be a strong signal of support for China's surging private economy, they said private enterprises will soon be allowed to invest in electricity, civil aviation, telecommunications and other sectors heavily controlled by the government.

The document said that private companies would even be able to invest in infrastructure construction, public undertakings, financial services and national defense, which have to now been monopolized by the state sector.

The announcement follows research by a group of cabinet departments including the National Development and Reform Commission (NDRC) and the State Council Research Office.

Lin Yueqin, a researcher with the Chinese Academy of Social Sciences’ Economic Research Institute, told China Daily that the State Council’s pronouncement is "comprehensive and encouraging."

"It is another milestone for the government to deliver their backing over essential contributors to China's economy," said Lin. "But we need more efforts to implement them." He said this would build on development of the private economy since the Promotion Law on Medium and Small Enterprises took effect in 2003 and the government’s investment and financing system reforms of last year.

An NDRC spokesperson said the government should attach great importance to the status of the private sector as China is becoming more market-oriented and integrated into the global economy.

He said the private economy now accounts for one-third of the total, whereas in 1978 it comprised less than 1 percent of it.

The Research Association on the Private Economy said that production value of the private sector rose from 42.2 billion yuan (US$5.1 billion) in 1989 to 2 trillion yuan (US$241 billion) in 2003.

Despite those achievements, the NDRC spokesperson admitted that financial headaches were the top difficulty facing private companies, but that the government is encouraging them to seek capital both from banks and the stock market.

(China Daily February 25, 2005)