China’s Li Tells Local Governments to Stop Setting Up Companies

China Premier Li Keqiang said local governments should stop directly investing in or setting up companies “in principle,” according to comments released a day before leaders gather to discuss economic policy.

Allowing local authorities to invest in companies or to intervene in their operations can ‘easily’’ lead to monopolies and market barriers, Li was cited as saying at a Nov. 1 meeting, according to a statement posted on the central government’s website today.

The remarks reflect Li’s broader campaign to reduce the state role in the economy and come ahead of a Nov. 9-12 meeting where the Communist Party’s central committee may unveil sweeping economic reforms. The party is also seeking to rein in borrowing by local governments through companies set up to build infrastructure such as roads, bridges and sewers.

When Li took office in March, he pledged to open the economy to market forces and strip power from the government. That process will be “very painful and even feel like cutting one’s wrist,” he said then.

Instead of trying to drive economic development, local governments should act as policemen to ensure fair competition, Li said at the meeting, which was convened to discuss changes to the role of local governments.

The party gathering that starts tomorrow may introduce measures to let domestic private investors enter industries now dominated by state-owned companies, Deutsche Bank AG economist Ma Jun wrote in an e-mail Oct. 31

Former Finance Minister Xiang Huaicheng said in April that local government debt may exceed 20 trillion yuan ($3.3 trillion). China’s State Council ordered a national audit of local government debt in July on concerns that some cities and provinces may not be able to repay their borrowings. The results haven’t been released.

— With assistance by Aipeng Soo

Before it's here, it's on the Bloomberg Terminal.