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Economic reform plan targets state firms, financial sector

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BEIJING, May 19 (Xinhua) -- China is giving greater attention to reforms for state firms and the financial sector, with more forceful measures likely to be unveiled this year.

China's cabinet released an annual economic reform plan for 2015, laying out 39 tasks in eight aspects on Monday.

The National Development and Reform Commission, the country's top economic planner, formulates the plan every year, which is widely deemed as a mini version of the annual government work report delivered by the premier in March.

Comparing it with previous plans, analysts said the 2015 document highlighted the significance and urgency of further and quicker reforms in state-owned enterprises (SOE) and the financial sector.


The 2015 plan listed SOE reforms as the second most important aspect, compared with a fourth place in the 2014 document.

The plan said the government will make or revise 16 sets of regulations to reinvigorate the public sector: restructuring centrally administered SOEs, lowering market threshold for private investors and overhauling the supervision mechanism to prevent losses of state assets.

"This is the first time for the government to elaborate on the direction of SOE reforms," said Li Jin, chief researcher with the China Enterprise Research Institute.

"The plan mentioned SOE restructuring, which deserves much attention," said an anonymous source with a research center under the State-owned Assets Supervision and Administration Commission (SASAC), China's non-financial SOE watchdog.

In April, media reports that China's 112 non-financial SOEs directly administered by the central authority will merge into 40 went viral online .

The SASAC neither confirmed nor denied the consolidation in a later statement, just saying "the story was written without interviewing or verifying with us".

Market value of China's SOEs totaled 25.24 trillion yuan (4.1 trillion U.S. dollars) at the end of 2014, accounting for 60.4 percent of the whole market value of China's two stock exchanges.

The SASAC statement sent the benchmark Shanghai Composite Index down by 1.13 percent following a surge on the consolidation reports. History showed that a piece of news, good or bad, is probably enough to trigger a sharp fluctuation in the stock market.

"The government has the motive to consolidate the public sector by restructuring SOEs, but there is too much misinformation in the market," said Li, advising stock holders to invest calmly and cautiously.


Instead of a few sentences in the 2014 plan, the 2015 document used five paragraphs to set four tasks: building a multi-tier financial system, pushing ahead with interest rate liberalization and capital account convertibility, implementing a registration mechanism for stock issuance, and launching catastrophe insurance.

China is working to lift control of interest rates and give financial institutions more freedom to price deposits and loans.

In a latest move toward interest rate liberalization, China's central bank raised the upper limit of the floating band of deposit rates to 1.5 times the benchmark from the previous 1.3 times.

Currently, the yuan's convertibility on the capital account is subject to strict control in order to prevent huge volumes of capital outflow. The country has promised free convertibility.

During the political "two sessions" in March, central bank governor Zhou Xiaochuan pledged to accelerate reform and opening up of the capital market in 2015, with the aim to make the yuan convertible on the capital account.

Zhang Zhiwei, Deutsche Bank's chief China economist, expected major progress in this direction in 2015 and consequently more capital inflow into China.

"An open capital account will benefit China as money inflow will drive up prices of stocks and bonds," said the economist.

Xiao Gang, head of China's top stock market regulator, said in January that 2015 will see the phasing out of the current approval-based method for initial public offerings (IPOs) and the implementation of a registration-based system.

"The new system will allow the market to play a deciding role and establish a boundary for regulatory power, as well as protect investors' interests," Xiao said.

The cabinet reiterated its stance to carry out these reforms in the 2015 plan, and the implementation will likely speed up this year.


While some analysts said China may compromise reform commitments to a pressing need to stabilize ailing growth, the 2015 plan signaled firm reform determination.

"The government will actively adapt to the economic 'new normal', and roll out forceful reform measures," said the plan.

At a meeting of the Central Leading Group for Deepening Overall Reform earlier this month, Chinese President Xi Jinping asked officials to dedicate their efforts to the country's reform drive.

"We should have the courage to change ourselves, face up to challenges, and deepen reforms in a comprehensive way," said Xi.

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