With pricing rights still in government hands, investors are finally being allowed access to offering daily necessities such as water and gas in Chinese cities.

The Ministry of Construction began enforcing a Regulation on Chartered Operations of Urban Infrastructure Facilities on May 1.

The act is aimed at making full use of private and overseas capital to make up for inadequate fiscal investment, according to an announcement from ministry spokesman Zhu Zhongyi at Monday's news conference in Beijing.

After drawing on the experience of developed nations, the ministry will grant qualified market players with an operation duration of one to 30 years concerning urban utilities.

The operational model will not only reduce operating costs for infrastructure facilities, but also help enhance service quality.

Li Dongxu, department head of the ministry, said the reform is another sling towards a market-oriented economy for China.

"The role of government should change as soon as possible from supervisors from business operators," said Li, adding that state-owned enterprises "are inefficient and some local governments cannot invest enough to keep up with the fast urbanization process."

According to the regulation, private and foreign funding will be allowed to conduct chartered operations in infrastructure facilities, including water, gas and heating supplies, as well as sewage treatment and solid waste disposal. Also included will be public transport, such as expressways, subway lines, the light rail system and bus routes.

"The government will follow open, just and fair principles," Li said.

Public bidding and auctions will be adopted to guarantee transparency.

Investors and local governments have already shown their enthusiasm about the reform during its preparatory period. Recently, local governments submitted a list of more than 700 projects on urban road construction, water supply, gas and heating systems and waste treatment in most medium and large cities nationwide.

About 150 billion yuan (US$18 billion) is to be earmarked for the projects, previously monopolized by the State.

But some flaws could become apparent during the process of market-oriented reform, as local governments believe that "opening up the market simply means selling SOEs in charge of public services to investors."

"The trend is likely to result in dreadful consequences if (the government) doesn't keep a close eye on operators," Li said.

"The regulation is a tool to ensure that city residents will have satisfactory services."

The regulation also sets out clear and strict rules on the duties and rights of the governments and investors.

Li said the government will help the investors in public utilities earn a profit through various means.

Construction and management of urban infrastructure facilities are expected to boom as the progress in China's urbanization accelerates.

The government is planning to boost its urbanization rate to at least 50 percent by 2020, from 37.7 percent in 2002. Currently, China has 662 cities and 20,358 towns, with a total urban population of 481 million.

(China Daily May 3, 2004)