International investors may take full control of almost all state-owned enterprises (SOEs) in northeast China's Liaoning Province, according to an announcement yesterday by the province's Vice-Governor Li Wancai. The only exceptions to the new rules are SOEs under control of the central government and coal mines.

In a meeting with a group of Internet media executives, Li said: "We encourage international investors to participate in the reform and restructuring of large State-owned enterprises.

"The ceiling percentage for foreign investment is 51 to 100 per cent. Foreign investors may take full control of all provincial SOEs except coal mine companies in Liaoning."

Li said Liaoning will push forward 200 items for international cooperation in such industries as manufacturing, petrochemicals and pharmaceuticals.

Liaoning is one of the last bastions of the planned economy in China where SOEs still dominate. International cooperation had been restricted to small and medium-sized SOEs and private companies.

Large SOEs have previously been a minefield for foreign investors. Although there has been cooperation, foreign investors have never been allowed a majority share.

Now, according to Li, international investors may take full control.

"This is a positive policy. I believe it will help the region attract more foreign investment," said Edgar Hotard, board chairman of Monitor Group in China, an international consultancy.

Hotard praised the move, saying he believed the new policy would not only establish a model, but would also help speed up the development of the local economy.

About two months ago, the provincial government was taking bids on its 24 large-scale SOEs, but there were restrictions on some industries.

"This may seem a rather bold action - even today, when China has had its door open for more than two decades," said Liu Changjie, a freelance writer for the Economic Observer. "But I think this was a must for local governments."

Li Xiangping, an economist at the Liaoning Academy of Social Sciences, agreed. Most of the small and medium-sized SOEs had undergone reform in Liaoning, Jilin and Heilongjiang provinces of northeast China. The main problem, therefore, was how to reform large SOEs.

"It is hard to follow the same route (for the large SOEs) as the small ones, because this involves big money and a transition in the management system," Li said.

The purpose of the No 36 document, which the central government actually issued a month ago, is to help the industries in the Northeast attract more investment. To revive the region, the central government has provided more preferential policies for foreign companies that invest there.

It is a policy that will continue.

"We will adopt flexible policies and measures to attract overseas investors to make profits in Northeast China," said an official with the Office for Revitalizing the Old Industrial Base in northeast China under the State Council.

Even so, "there are two hurdles that hold back large-scale SOE reform," said Lin Muxi, chief of business school from local Liaoning University. "One is debt, and the other is redundant staff. Now the document frees them from these bonds."

(China Daily September 16, 2005)