OREANDA-NEWS. May 10, 2011. Entrepreneurs could face new challenges under a government plan to modernize Chinese industry that would expand the dominance of state companies in coal mining, steel and other fields.

The sweeping plan lays out which industries Beijing wants to develop and which will be discouraged as it tries to make China's economy more efficient. It reflects Communist Party ambitions to transform this country from a low-wage factory into a prosperous creator of technology.

It promises support for clean vehicles, solar power and other technologies and calls for the closure of small coal mines and steel mills -- an industry segment dominated by private owners. That would further erode the private sector role in those industries, which Beijing is trying to consolidate under state-owned leaders.

"The smaller players may well lose out from this," said IHS Global Insight analyst Xianfang Ren. "That will help the consolidation of state authorities over these industries."

The 110-page document issued by China's planning agency, the National Development and Reform Commission, gives details of how the ruling party plans to achieve some of its goals in its latest five-year development plan. It updates a similar list released in 2005.

Such documents are a throwback to China's era of central planning but serve an important role as a roadmap of government intentions and a guide for officials to make investment, trade and other policies.

Government endorsement of an industry in China's heavily regulated economy can ease access to land and state bank loans while disapproval can destroy a business by cutting off access to credit and operating licenses.

Despite three decades of reform, China's economy is still dominated by government industry. Beijing is trying to create state-owned "national champions" in fields from energy and telecommunications to banking.

That has prompted complaints by foreign business groups that communist authorities are improperly supporting China's competitors with subsidized and market barriers in violation of the spirit of its free-trade commitments.

In a report this week, the American Chamber of Commerce in China says its members believe Chinese protectionism has increased since the 2008 global crisis and they expressed concern they will be hurt by Beijing's industry development plans.

The government's development list sets out 750 industry segments that will be encouraged, 426 that will be phased out and 223 that will be restricted based on criteria such as minimum size.

The list gives high priority to developing renewable energy sources using water, solar and wind, as well as nuclear energy. The commission favors plants with 600 megawatts of peak capacity and above.

It says Beijing also will encourage development of recycling and other environmental technologies.

That could create openings for foreign companies because China lacks the technology it needs, said Ren.

"This will offer some good opportunities," she said. "But the condition is that these companies will be willing to transfer technology to Chinese partners. That's their ticket to the party."

In renewable vehicles, foreign automakers were alarmed by a draft plan issued last year that suggested they might be required to give their latest technology to local partners if they want to sell cars in China.

Companies are watching for the final rules, due to be issued in the next few weeks.

In coal, the NDRC said it would encourage mines with production capacity above 1.2 million tons per year, phase out mines below 300,000 tons and prevent new development of mines between those groups, depending on their location.

Owners of private coal mines and steel mills already have been under pressure to sell out to state-owned industry leaders as part of government efforts to reduce excess production capacity and improve efficiency.

The NDRC also affirmed Beijing's plans to restrict mining of rare earths. China has about 30 percent of the world's deposits and accounts for 97 percent of global production. It has announced plans to limit export of raw ores as it tries to build up its own producers of lightweight magnets and other products that use the exotic metals.

Its plan also includes goals for reducing use of polluting products such as disposal dinnerware and traditional lead-acid batteries. Instead, it favors lithium-ion batteries and biodegradable plastics.