(In March 4 story, corrects 6th paragraph to remove referenceto banks)
By Matthew Miller and Charlie Zhu
BEIJING, March 4 (Reuters) - China's decision last month tosell a stake in a subsidiary of Sinopec Corp signals more privatisation of its bloated state-ownedsector will take place soon, with plans likely to be discussedat this week's parliament session, officials and experts said.
Sinopec, Asia's biggest oil refiner, said on Feb. 20 that itwould sell up to 30 percent of its marketing arm, which ownsmore than 30,000 petrol stations, in a multi-billion dollarasset restructuring. No details have been provided.
It was China's first announcement of a major restructuringsince President Xi Jinping unveiled sweeping reforms of thesocialist economy at a Communist Party conclave last November.He promised to encourage more private participation instate-owned enterprises (SOE's), which include some of theworld's largest companies.
"Reform towards fully mixed ownership will increase, in suchareas as petroleum and petrochemicals, power andtelecommunications," said Zhang Chunxiao, an adviser at theState-Owned Assets Supervision and Administration Commission(SASAC).
"State-owned enterprises will look to attract high-calibrestrategic investors, including foreign capital," he toldReuters.
SASAC is a ministerial-level body run by China's cabinet andis directly responsible for 113 state-owned companies, includingSinopec, oil giants PetroChina and CNOOC, and China Mobile, which operates the world's biggest network of mobilephone users.
Beijing will however retain control of critical lifelineindustries, including enterprises related to national securityand key economic sectors - upstream energy, transportation andports, Zhang said.
Policies governing state-owned enterprise restructuring andthe introduction of private investment will be discussed at theannual session of China's parliament that begins on Wednesday,state media reported.
Over the last 20 years, China has graduallyintroduced private investment and Western-style management toits state firms and turned the country's biggest governmentconglomerates into stock market-listed shareholding firms.
Beijing's central government-controlled SOE's owned 378subsidiaries trading on global stock markets by the end of 2012.Provincial and local government firms had listed another 681companies by the end of last year.
Critics say the sheer size and market dominance of big statefirms creates a drag on the economy through vast opportunitiesfor waste and corruption. State-owned companies enjoyprivileged access to low-cost credit and draw more than 35percent of total bank loans.
SIGNIFICANT
The stake sale in the Sinopec subsidiary is significantsince it will offer investors a chance to enter China's highlycontrolled and sprawling downstream fuel market.
It remains unclear whether Sinopec would divest the stakethrough a trade sale to investors or through an initial publicoffering on the stock market.
The possibility of bringing in a foreign strategic investorlike Royal Dutch Shell or BP Plc, which alreadyoperate retail joint ventures with Sinopec and PetroChina, alsocan't be ruled out, analysts said.
"This time (private) capital is being brought intoproduction and management," said Chen Yongjie, deputysecretary-general of the China Center for International EconomicExchanges, a well-connected think-tank in Beijing, adding thatthe model was likely to be extended to other stake sales.
Provincial and local governments which control the vastmajority of the country's more than 140,000 SOE's are alsogetting into the act. In recent weeks, local governments inseveral provinces, including Guangdong and Shaanxi, have saidthey will seek more non-state investors.
In the southern coastal city of Zhuhai, the government isseeking strategic investors to buy a big minority stake inZhuhai Gree Group, a major household appliance maker.
Besides making SOE's more responsive to market forces, suchprivatisations could help unlock enormous hidden value.
The marketing and distribution division of Sinopec, whichalso engages in oil and gas exploration and production, refiningand chemicals production, accounts for nearly half of thegroup's annual total operating profits.
The segment posted an unaudited operating profit of 27.03billion yuan ($4.46 billion) in the first nine months of 2013,down 10.5 percent year on year, partly because of a slowingChinese economy.
Sinopec shares in Hong Kong have gained more than 11 percentsince it announced the divestment.
China's biggest state-owned industrial companies andconglomerates reported main business income of 25.8 trillionyuan ($4.20 trillion) last year, about one-quarter of the totalfor all industrial companies. State enterprise assets amountedto 91.1 trillion yuan ($14.83 trillion).
However, much more needs to be spelled out before privateinvestors will be confident of any privatisation scheme,analysts caution. Corporate governance at state-controlled jointventures remains problematic and management often puts nationalinterest ahead of minority shareholders.
Private investors also may be wary of the risk ofnationalisation. The government set off howls of protest when itforced out private investors from the oil fields in northernShaanxi province in 2005, and coal mines in neighboring Shanxiprovince four years later.
"A lot more is needed. (Incremental and marginalprivatisation) in of itself doesn't do much," said ArthurKroeber, head of research at Gavekal Dragonomics, an independentglobal economic research firm.
"I find it hard to imagine a substantive privatisation ofthese big central SOE's. In that context, I find it hard toimagine how bringing in marginal outside investors will have afundamental impact on the behavior of these companies.
"There needs to be a break with the traditional jointventure model."($1 = 6.1450 Chinese yuan) (Additional reporting by Yan Huang in Beijing; Editing by RajuGopalakrishnan)