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
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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

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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