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April 29, 2017

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China's industrial development plan could strengthen state firms

BEIJING -- Entrepreneurs could face new challenges under a government plan to modernize Chinese industry that would expand the dominance of state companies in coal mining, steel and other fields.

The sweeping plan lays out which industries Beijing wants to develop and which will be discouraged as it tries to make China's economy more efficient. It reflects Communist Party ambitions to transform this country from a low-wage factory into a prosperous creator of technology.

It promises support for clean vehicles, solar power and other technologies and calls for the closure of small coal mines and steel mills — an industry segment dominated by private owners. That would further erode the private sector's role in those industries, which Beijing is trying to consolidate under state-owned leaders.

"The smaller players may well lose out from this," said IHS Global Insight analyst Xianfang Ren. "That will help the consolidation of state authorities over these industries."

The 110-page document issued by China's planning agency, the National Development and Reform Commission, gives details of how the ruling party plans to achieve some of its goals in its latest five-year development plan. It updates a similar list released in 2005.

Such documents are a throwback to China's era of central planning but serve an important role as a roadmap of government intentions and a guide for officials to make investment, trade and other policies.

Government endorsement of an industry in China's heavily regulated economy can ease access to land and state bank loans while disapproval can destroy a business by cutting off access to credit and operating licenses.

Despite three decades of reform, China's economy is still dominated by government industry. Beijing is trying to create state-owned "national champions" in fields from energy and telecommunications to banking.

That has prompted complaints by foreign business groups that communist authorities are improperly saddling China's competitors with subsidized and market barriers in violation of the spirit of its free-trade commitments.

In a report this week, the American Chamber of Commerce in China says its members believe Chinese protectionism has increased since the 2008 global crisis and they expressed concern they will be hurt by Beijing's industry development plans.

The government's development list sets out 750 industry segments that will be encouraged, 426 that will be phased out and 223 that will be restricted based on criteria such as minimum size.

The list gives high priority to developing renewable energy sources using water, solar and wind, as well as nuclear energy. The commission favors plants with 600 megawatts of peak capacity and above.

It says Beijing also will encourage development of recycling and other environmental technologies.

That could create openings for foreign companies because China lacks the technology it needs, said Ren.

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