As China embarks on a new wave of opening up state-dominated industries to private capital, foreign firms will largely be kept out and authorities are likely to look to institutions like domestic pension funds and insurers.
State giants China National Petroleum Corporation and China Railway Corporation have said they were seeking investments from private capital and also social capital, or funds sourced from pension funds and insurance companies.
"I think those are going to be the key groups that the SOEs (state-owned enterprises) will first partner up with," said Sun Lijian, deputy director of the School of Economics at Fudan University. "It will also fit in with Beijing's strategy to diversify investment channels for its vast, locally managed pension funds."
The move reflects China's desire to avoid adding further debt on to the government's books while injecting much-needed cash into vital sectors, but without ceding control.
Premier Li Keqiang said on the opening day of the annual parliament session last week that the fiscal deficit would be maintained at 2.1 percent of GDP in 2014, the same as last year.
Analysts said recent announcements by some of the largest SOEs to diversify ownership provides a hint of the public-private partnership model as China opens up its petroleum, railway, finance, power and telecom sectors to private investors for the first time.
Investments by local insurers and pension funds will not only allow China to tap into massive savings to fund investments as economic growth slows, but it will also allow these institutions to diversify their portfolio away from a dependence on bonds and other fixed income products.
Assets under management in China's pension system totaled US$1.2 trillion at the end of 2012, according to newspaper reports. Insurance companies had assets of 8.289 trillion yuan (US$1.36 trillion) at the end of 2013, official data shows. Invested funds totaled 7.687 trillion yuan, of which 29 percent was in bank deposits, 43 percent in bonds, and 10 percent in stocks and related securities.
For the energy sector, however, analysts said there would be more opportunities for foreign players in areas where they have technological advantages, particularly in the development of unconventional gas resources.
"In areas where the SOEs lack the technological know-how, they will open the doors to foreign companies, otherwise the priority is still local companies," said Michael Yuk, a senior energy analyst at China Merchants Securities.
Sinopec, Asia's biggest oil refiner, said last month that it would sell up to 30 percent of its marketing arm, which owns more than 30,000 petrol stations, in a multi-billion dollar asset restructuring. While analysts said Sinopec could bring in strategic foreign players, such as Royal Dutch Shell or BP, executives at overseas energy firms are less sanguine.
"None (of the international energy companies) have the illusion that Sinopec will reach out to us in its divestment ... there's no such possibility," said an official with a global energy firm, adding that fuel retailing is a sector where Chinese authorities want to limit foreign participation.
China Railway Corp plans to seek private investment for a railway development fund that could be launched this year, the Shanghai Securities News reported last week. Details of the fund are still being formulated and a framework may be established by the first half of 2014, deputy general manager Peng Kaizhou was quoted as saying.
Peng said the company was considering setting up a national rail development fund, with a fixed rate of return, or establishing an investment fund for specific projects.
