Once the proper incentives are created, domestic private enterprises could become the principal investors, major market players, and cooperating partners of foreign companies in infrastructure, including public utilities, transportation, and telecommunications. These incentives could include long-term low-interest loans, tax benefits, and permission to issue long-term construction bonds.

In Wenzhou, Taizhou, and some other regions in Zhejiang province, private enterprises have been major players in modernizing infrastructure. There and elsewhere, experience shows that as long as firms are fully owned by or dominated by the state, there is no way to engage them in market competition, the driving force of development. Principal investors thus should be enterprises, not the state. Ownership should be separated from management. Once the relative weight of nonstate investment increases, conditions for a level playing field can be created. The state should preserve its majority only in enterprises of strategic importance.

Once public utility and infrastructure firms are transformed into joint-stock companies, private enterprises will be able to invest in the sector. The government should refrain from imposing unnecessary administrative interference or controlling the personnel, operations, and finance of companies officially owned by private owners. The government’s scope of activities, regulations, and functions should fundamentally change from direct control and administration to monitoring.

Enterprise reform is imperative, especially in the telecommunications, civil aviation, railway, and power industries. Hainan Airlines provides compelling evidence for the need for this change. In 1991, when the airline was founded, the government invested a mere 10 million renminbi in the company. After its transformation into a joint-stock company, the company’s equity increased to 200 million renminbi. Today its total asset value is about 6 billion renminbi. The airline has undergone rapid development and become an engine for economic growth.

What should be the agenda for enterprise reform in infrastructure?

Policy measures to promote the role of the nonstate sector in the reform and development of public utilities and infrastructure should include the breaking up of monopolies to protect competition. In sectors in which strong monopolies exists, price regulation should be strengthened to maintain market order and protect the rights and interests of consumers.

A proactive fiscal policy should also provide increasing support to private investment while reducing the government’s direct involvement in the development of public utilities and infrastructure.

China’s government is forging ahead with institutional innovations and measures that remove barriers to market access of the nonstate economy. Legislation is needed to provide legal protection for the nonstate economy.