UPDATE 1-China Telecom seeking private investment amid reform of state-owned firms -paper

Tue May 13, 2014 10:53pm EDT

* Eyes private funds for new online business areas - paper

* Beijing piloting moves toward private-public ownership (Adds additional company comment, background on reform drive)

By Paul Carsten

BEIJING, May 14 (Reuters) - State-owned China Telecom Corp Ltd, China's third-largest carrier, is seeking private investment to help it develop new businesses like online payment systems and social networking, the official English-language China Daily reported.

"Joint ventures and acquisitions are both possible ways for us to cooperate with private firms," said Wang Xiaochu, China Telecom's chairman, according to a report in the newspaper on Wednesday.

"We are ready to leave operating rights to smaller but more capable shareholders even when China Telecom controls the majority of shares," Wang said, according to China Daily.

China's top conglomerates, including Sinopec, or China Petroleum & Chemical Corp , and investment company CITIC Group Ltd have announced spin-offs and restructuring plans in recent months, while local authorities have begun experimenting with new management structures.

The moves follow the November announcement by China's Communist Party that the government would push for reforms to increase the role of the market and private sector in state-owned enterprises (SOEs), widely seen as inefficient. China's three state-owned telecommunications carriers have been targeted to push ahead with new measures.

The companies - China Mobile Ltd, China Unicom Hong Kong Ltd and China Telecom - are also seeing the introduction of private competition in the form of mobile virtual network operators (MVNOs), who lease network capacity from the carriers and sell their own subscription packages to customers.

China will also trial a new value-added tax for the carriers from June 1, which analysts say will have a negative impact on their profits.

During the March session of China's parliament, Premier Li Keqiang highlighted telecommunications firms as well as the banking, oil, electricity, railway, resources development and public utilities sectors as targeted recipients of non-state capital.

PetroChina Co Ltd said on Monday it plans to sell more multi-billion dollar pipeline projects to raise cash, cut capital spending and promote private investment in energy, after divesting part of its pipeline assets last year.

That follows the February announcement by Sinopec that it would sell 30 percent of its petrol station and retail assets.

In April, CITIC Pacific agreed to buy the main operating unit of its parent, state-backed CITIC Group, for $36.5 billion, the biggest injection by any Chinese firm into a Hong Kong-listed company, according to analysts.

China's SOEs are undergoing other changes.

The Ministry of Finance announced earlier this month an increase in the dividends SOEs must pay in 2014 to the government, a step to reform China's income distribution. The increase of five percentage points is expected to hit the free cash flow of the SOEs, said Moody's ratings agency in a note last week. (Reporting by Paul Carsten; Additional reporting by Matthew Miller; Editing by Stephen Coates and Kenneth Maxwell)

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