* China state firms say reform should mean growth
* Party delegates spend day two of congress praising Hu
* U.S. wary of China state link to foreign investment
By Charlie Zhu and Lucy Hornby
BEIJING, Nov 9 China's big state-owned
enterprises argued for continued expansion on Friday, echoing
outgoing President Hu Jintao's comments urging more investment
in major government firms and curtailing hopes of reform in the
Party delegates spent day two of the 18th Communist Party
Congress holding public debates on Hu's speech at which they
read out bits that they particularly liked. Reuters reporters
heard no one disagreeing with what Hu said in a nearly
At the opening of the congress on Thursday, Hu stressed the
importance of continued one-party rule and how it was threatened
by corruption, a reference to the downfall of one-time
high-flying politician Bo Xilai.
He also suggested a further strengthening of the state in
strategic sectors, with the possibility of more market-oriented
competition in other sectors.
"The direction of the SOE (state-owned enterprise) reform
should be: SOEs must be more market-oriented and they must keep
strengthening their vitality and influence," Wang Yong, the head
of a commission on supervising and administering state-owned
assets, told reporters.
"Scholars may have different views, but that's the
development need of the enterprises and the state."
Hu had said on Thursday that Beijing must "unwaveringly
consolidate and develop the public sector of the economy".
"(We should) invest more state capital in major industries
in key fields that comprise the lifeline of the economy and are
vital to national security."
But outgoing Premier Wen Jiabao vowed in a speech earlier
this year that Beijing would push ahead with monopoly-busting.
"We must move ahead with reform of the railway, power and
other industries, complete and implement policies and measures
aimed at promoting the development of the non-state economy,
break monopolies and lower industry thresholds for new
entrants," he had said.
State-owned enterprises and affiliated businesses account
for more than half of output and employment in China, the
world's second-biggest economy. They include power grid-operator
State Grid, the world's seventh-biggest company.
Oil giants Sinopec Group and China National Petroleum Corp,
parent of PetroChina, rank fifth and sixth,
respectively. Of the 70 mainland companies on the 2012 Fortune
Global 500 list, 65 are state-owned.
Chinese reformers and Western governments say their sheer
size and market dominance creates a drag on the economy through
vast opportunity for corruption and waste, leading to higher
costs for consumers.
Calls for reform built up as factions manoeuvred ahead of
the once-in-decade leadership transition at the congress. When
Xi Jinping, Hu's anointed successor, is in place he will be
under immediate pressure to break the grip of inefficient SOEs
and reinvigorate China's three-decade-long economic miracle.
But he will have to deal with the divisions within the party
Critics claim that without further reform of the state
sector, China's growth will stagnate. They call for equal
opportunity for private firms, which provide most of the new
jobs in China.
On Friday, data for October showed the economy was pulling
away from its slowest growth in three years. Analysts said that
thanks to a raft of pro-growth policies rolled out by the
government in recent months.
Wang, the state assets commission chief, admitted that the
enterprises were saddled by a bloated workforce, a legacy of the
But he and other state-firm bosses emphasised their
importance to what they called "national economic security" in
their gathering, laying out plans for further investment and
The large state role prompted a U.S. congressional advisory
panel to complain this week that Chinese investment in the
United States had created a "potential Trojan horse".
The study, commissioned by U.S.-China Economic and Security
Review Commission, found that Chinese-owned firms in the United
States added between 10,000 and 20,000 workers in the past five
years and helped shore up financially troubled U.S. firms.
The investment was spearheaded by Chinese state-owned
enterprises that enjoyed government subsidies and other
market-distorting policies that support industrial policy and
non-market goals of the Chinese government, it said.
"Based on this juxtaposition, some will conclude that
Chinese FDI (foreign direct investment) in the United States is
a potential Trojan horse," the report concluded.
Chinese telecoms firm Huawei Technologies, the world's
second-biggest telecoms equipment maker - and another
telecommunications firm called ZTE - spent much of this year
under siege by U.S. lawmakers who suspect Huawei has close ties
to Beijing and that its equipment could be used for espionage.
The telcos are not state-owned enterprises. Huawei is owned
by its employees and ZTE by different institutions.
The party congress ends on Wednesday, after which the new
Standing Committee, at the apex of power, will be unveiled.
Only Xi and his deputy, Li Keqiang, are certain to be on
what is likely to be a seven-member committee, and about eight
other candidates are vying for the other places.