CHINA: MIIT SAYS INDUSTRIAL POLICY TO REMAIN UNCHANGED;

UNCLAS SECTION 01 OF 02 BEIJING 000042 SIPDIS SENSITIVE TREASURY FOR OIA CWINSHIP AND TTYANG STATE PASS USTR FOR STRATFORD AND KEMP E.O. 12958: N/A TAGS: ECON EIND EFIN ETRD SENV CH SUBJECT: CHINA: MIIT SAYS INDUSTRIAL POLICY TO REMAIN UNCHANGED; STATE-OWNED FIRMS ESSENTIAL TO ECONOMY Ref: A) 09 BEIJING 000151 B) 09 BEIJING 001339 C) 09 BEIJING 003115 ¶1. (SBU) SUMMARY: In a January 7 meeting, Ministry of Industry and Information Technology (MIIT),Department of Industrial Policy Deputy Director General Hou Shiguo told Economic Minister Counselor China treated State Owned Enterprises (SOEs) and private companies equally, but indicated that, due to their size, SOEs were essential to the economy. There would likely be no major changes in industrial or privatization policies in 2010 or in the next five-year plan, and MIIT would continue to focus on reducing pollution and overcapacity in industries like cement, steel, and aluminum. Hou also predicted continued positive auto industry growth in 2010. Department of Industrial Policy Division Chief Miao Changxing, who is responsible for provincial coordination, acknowledged difficulties in coordinating national industrial policies with provincial and local governments, but claimed "in the end, our interests are one and the same." END SUMMARY. MIIT 2010 priorities: energy savings, emissions reduction -------------- -------------- ¶2. (SBU) Department of Industrial Policy Vice Director Hou Shiguo told Econ MinCouns January 7, MIIT's industrial policy priorities in 2010 would remain unchanged from the year before: increased R&D, energy savings, and factory pollution reduction. Hou also explained that MIIT was founded in March 2008 and takes its authorities from four ministries and bureaus, most prominently the Ministry of Information Industry and the State Council's Informatization Office. MIIT was responsible for the formulation of industrial and information technology policy, including communicating with the public about these issues. He noted that MIIT was increasingly concerned about developing a better environment for the development of Small and Medium Size Enterprises (SMEs),as they make up a large portion of the Chinese economy. Worker safety would also remain a priority, said Hou, but did not comment in detail about the implementation of energy savings, emissions reduction, or increased efficiency. No Special Treatment for SOE National Champions -------------- -- ¶3. (SBU) Promoting an equal playing field, with no special treatment for SOEs, was one of the most important philosophies underpinning China's industrial policy, Hou claimed. When pressed about stimulus money going overwhelmingly to SOEs and perceptions of preferential treatment in stock listings, Hou emphasized that SOEs and private competitors were on equal terms: "Major SOEs, like Sinopec, CNOOC, they have already won. They have survived in a competitive market and come out stronger. When the criteria for support or qualifying for stimulus benefits are named, SOEs are often better able to meet the criteria." When Econ MinCouns asked about further privatization of SOEs, Hou responded that, although privatization remained the purview of the State-owned Assets Supervision and Administration Commission (SASAC),it was unlikely the 12th five-year plan would include any new initiatives for further SOE privatization. Sectors that would definitely not see more privatization included the telecommunications, television broadcasting and military hardware sectors, Hou claimed. There might, however, be some reduction in SOE numbers through mergers and acquisitions, but SOEs would continue to play a large role in contributing to national GDP in key sectors. Balancing Provincial Interests -------------- ¶4. (SBU) Hou noted that MIIT would continue to use policy tools to address systemic challenges of industrial restructuring, overcapacity and polluting industries. Balancing the interests of the central government, provincial and local governments and private industry was a continual challenge, Miao admitted. To address these competing interests, MIIT would continue to work together with local government counterparts to implement overarching national goals, Miao said. Further, to address the regional imbalance in wealth distribution, the government would have to provide financial support to encourage the closure of high-polluting factories. Rising Vehicle Production/Demand: But for How Long? -------------- -------------- ¶5. (SBU) On automobile policy, Hou was optimistic about current trends, forecasting a similar trajectory of demand and supply coming off 2009's milestone of more than 13 million vehicles produced and sold. Although China's auto market was strong, Hou acknowledged BEIJING 00000042 002 OF 002 three fundamental challenges: the rising price of gasoline, carbon emissions and environmental pollution, and increasing traffic congestion. In the near-term, Hou predicted robust, continued growth, based in part on government policies to stimulate consumption, however, there would be a slow down at some point. "When that slowdown is, I don't know. Maybe when drivers are only allowed to drive three days per week due to congestion rules," he ventured. HUNTSMAN