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Print Edition> Business
UPDATED: September 1, 2014 NO. 36 SEPTEMBER 4, 2014
Capacity for Greatness
China's largest private investment company spearheads the country's industrial upgrade
By Zhou Xiaoyan

A RED-HOT INDUSTRY: Workers from a photovoltaic power station test the temperature of solar panels in Pingquan County, Chengde, north China's Hebei Province (LIU HUANYU)

On the morning of August 21, Dong Wenbiao, a seasoned veteran of China's financial sector, stood upright in front of a skyscraper in Shanghai, looking more confident and ambitious than ever before.

The 57-year-old used to be Chairman of the Board of China's first national bank founded by private capital—China Minsheng Bank. Starting from scratch, he went on to make it one of the most profitable banks in China. Now, he has taken the helm of the largest private investment company, China Minsheng Investment (CMI), pledging to use the accumulated private investment to build an industrial and financial conglomerate.

Back in 1996, the availability of private capital in China was quite limited. Therefore, the proposed 5-billion-yuan ($814-million) registered capital for China Minsheng Bank was later scaled back to only 1.38 billion yuan ($225 million) owing to insufficient investment from private firms.

Flash forward, and two decades later, the landscape has dramatically changed. Burgeoning private investment now plays an increasingly bigger role in the broader economy. This time, it only took Dong less than two months to gather the 50-billion-yuan ($8.1-billion) registered capital for CMI. A total of 59 top-notch private companies became shareholders in the company.

Dong described CMI's vision: guiding private investment, gathering private capital and unleashing the vitality of private capital in China's institutional reform.

CMI plans to establish nine subsidiaries to help ease the problem of overcapacity, a chronic headache for such industries as steel, photovoltaic (PV) power generation and shipbuilding.

A breakthrough

The idea of CMI was first floated by Dong in May 2013 and was approved by the Central Government in April. It is expected to be a private version of China Investment Corp., the country's $200-billion sovereign wealth fund.

The 59 shareholders of CMI are all large-sized private companies, with combined assets of nearly 1 trillion yuan ($163 billion). They are involved in a wide range of businesses including machinery manufacturing, metallurgy, information technology, assets management, environmental protection, new energy, power generation and e-commerce.

The establishment of CMI has arisen amid repeated promises from the Chinese Government since last November to allow the market to play a greater role in the economy.

To this end, the Central Government has rolled out several reform measures this year, including opening more sectors to private investment, issuing licenses for private banks, greatly reducing the number of administrative items that require government approval and delegating more power to lower government levels.

"CMI will be an experiment not only for China's private sector but for the entire economy as well," said Dong.

CEO Li Huaizhen said CMI would put an emphasis on China's domestic market, carefully choosing industries based on China's economic outlook and carrying out investment in projects deemed worthy.

Wang Jun, a senior economist with the China Center for International Economic Exchanges, a government think tank, said the founding of CMI will be important in stabilizing confidence and spurring private investment as the Chinese economy faces downward pressure.

For a long time, China's investment relied heavily on the Central Government and state-owned enterprises, which Wang said is unsustainable given increasing debt incurred by these enterprises and local governments.

"Restructuring of the Chinese economy calls for more private investment and for a bigger role to be played by private capital," he said.

Zhu Zhenxin, a macroeconomic analyst with Minsheng Securities Co. Ltd., said one thing to watch is whether or not the founding of CMI will benefit small private companies.

"Owing to its massive scale, CMI will of course be interested in incorporating smaller projects. But through the integration of the industrial chain, the company will also be able to bring more opportunities to downstream industries and smaller private enterprises," Zhu said.

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