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Your daily roundup of the best of The Wall Street Journal’s China coverage:

Beijing Considers Europe Support: Premier Wen said China is considering deeper involvement in the euro zone’s bailout funds, the strongest indication that China may help alleviate Europe’s crisis, but he fell short of offering firm commitments. (Free)

China’s Diplomacy Tested in Sudan Kidnap Drama: China approached South Sudan to help negotiate the release of Chinese captives held by rebels in neighboring Sudan, an unusual diplomatic move that risks complicating China’s ties with the two resource-rich nations. (Free)

China Fuels Its Global Energy Supply: PetroChina agreed to buy a big slice of a shale-gas play in Canada from Shell, bolstering Beijing’s footprint in North America’s energy patch. Two other Chinese companies also sealed energy deals. (Subscriber Content)

Imbalance Seen in Japan-China Deal: Some officials say Japan’s plan to buy up to $10 billion of Chinese bonds reflects frustration with China’s aggressive purchases of Japanese government bonds, and they hope it will encourage faster internationalization of the yuan. (Subscriber Content)

Reuters

Natural monopoly? A PetroChina gas station in Suining, Sichuan province.

Natural monopoly.

That’s the new term that China’s former state assets regulator has used to describe the dominance of the country’s giant state-owned enterprises – a dominance that economists and rivals say has been associated with high prices and low efficiency in many industries.

In a wide-ranging interview with the 21st Century Business Herald, Li Rongrong, the former chairman of the State-Owned Assets Supervision and Administration Commission, sought to dispel the notion that many Chinese government-controlled companies remain monopolistic, cumbersome and uncompetitive despite years of reforms. In remarks that have triggered criticisms from economists, Mr. Li also denied that overwhelming SOE presence in sectors such as energy and banking has choked off the lifeline and arrested the development of private businesses.

“’Guo jin min tui’ is a pseudo question, and the SOEs are the scapegoats of criticisms against state monopoly,” Mr. Li said, using a popular Chinese phrase that literally means “the state advances as the private sector recedes.”  (in Chinese)

“The monopoly of Chinese companies is mostly in the form of natural monopoly. It’s not like companies are using their monopoly to manipulate prices and the market,” Mr. Li said.

“What are PetroChina and Sinochem monopolistic of? The prices are set by the relevant government departments and not by themselves,” he added.

It’s unfair to accuse such SOEs of creating monopolies, he said, adding that laws and government regulations stipulate that strategic industries and economically vital sectors must be in the government’s hands.

Addressing widespread concerns about the low efficiency among many large SOEs with abundant land and other resources, Mr. Li said “it requires a process to allocate resources.”

“I am now teaching at the Tsinghua University. Half of the students are from private enterprises. I can say that I have never heard any private company criticize the SOEs. It’s only a few scholars who are really criticizing them,” Mr. Li told the newspaper.

The retired senior official’s remarks have led to a strong backlash of criticisms among some prominent economists and scholars. In economics, a natural monopoly is generally understood to mean a monopoly in which one business could more efficiently allocate resources than multiple providers. But that’s not the case with China’s monopolies, the critics said.

Writing on his microblog, Xu Xiaonian, a well-known finance professor at the China Europe International Business School, said Mr. Li’s comments were “illogical and off the mark.”

“Resources are owned by all citizens and should be allocated to whoever with higher efficiency, rather than asking whether it’s state-owned or private,” Mr. Xu wrote. “The petrochemical industry, for example, is not a natural monopoly. It’s an administrative monopoly,” he added.

Private businesses account for more than 60% of China’s economic output and at least 80% of the country’s massive work force But the government’s dominance in important and lucrative sectors, including natural resources, financial services and transportation, has intensified in recent years, hence the catchphrase “guo jin min tui.”

The SOEs, which enjoy preferential policy treatment and favorable borrowing conditions from banks, often come under the public eye for what critics call wasteful spending. In 2009, Sinochem was accused of purchasing a chandelier for its headquarters’ grand-looking lobby for 12 million yuan (around $1.90 million). The company later said the total cost was merely 1.56 million yuan.

Beijing has appeared reluctant to change the status quo and signs of reforms usually come only after a major crisis or due to a lack of choices. For example, with many of China’s railway projects on hold and the authorities finding it hard to secure financing after a deadly accident in July, the government finally agreed last month to let private capital invest in this historically off-limits sector. But how this will happen remains unclear.

–Shen Hong; follow him on Twitter at @ShenHongDJN

Agence France-Presse/Getty Images

A handout picture from U.S. Navy dated Feb. 21, 2007, shows the Nimitz-class aircraft carrier USS John C. Stennis as it conducts operations in the Persian Gulf.

Your daily roundup of the best of The Wall Street Journal’s coverage:

China Challenges U.S. Naval Might: China and the U.S. are quietly engaged in a tit-for-tat military-technology race. At stake is the balance of power in a corner of the seas that its growing rapidly in importance. (Subscription required)

Sinopec in $2.5 Billion U.S. Deal: The state-controlled oil company struck a $2.5 billion deal with Devon Energy of the U.S. to help develop several shale fields in Ohio, Michigan and elsewhere. (Subscriber content)

Speaking of Energy: Athabasca Oil Sands said it was selling a 40% stake in one of its oil-sands prospects to PetroChina for $666 million, a move that for the first time will give full ownership of such a project to a Chinese company. (Subscriber content)

Home Prices Fall Again: Average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive sequential decline. (Free)

China Culls ‘Low Taste’ Shows: China’s satellite broadcasters have eliminated more than two-thirds of prime-time entertainment programs such as dating and reality shows to comply with tough new government restrictions, as Beijing increasingly seeks to rein in cultural trends it finds problematic. (Free)

Macau Gambling Revenue Rises: Macau gambling revenue rose 25% last month from a year earlier, capping off a strong year fueled by players from mainland China despite concerns about tighter credit or an economic slowdown there. (Subscriber content)

Samsung Wins Approval for China Plant: Samsung Electronics Co. has been given approval by the South Korean government to build a new flash memory manufacturing plant in China, which will give the electronics giant a major foothold in the country expected to become the world’s largest market for high-tech electronics in a few years. (Subscriber content)

Reuters

An Air China Boeing 747-400 passenger jet, which is filled with mixture of biofuel and aviation kerosene, takes off on an inauguration test flight at Beijing Captital International Airport in Beijing, October 28, 2011.

An hour-long flight around Beijing late last month by an aging jumbo-jet signaled the Chinese aviation industry’s hitch aboard a growing worldwide trend: fueling aircraft with plant oil.

The 20-year-old Air China 747-400 was powered in part by a biofuel produced from a shrub called jatropha. The flight was deemed a success by Chinese aviation regulators, who represent an important global constituency that coordinates 15,000 commercial flights per day and one of the fastest-growing markets. Particularly important, industry officials said, was that the entire project was conducted in China, starting with the planting of jatropha shrubs in the mountains of Yunnan province.

“This is China making sure it is comfortable with it,” Marc Allen, president of Boeing Co.’s China division, said in an interview Tuesday. “It’s proving out commercial viability.”

Since an inaugural 2008 Air New Zealand flight powered by biofuel, carriers around the world have tested jatropha-based fuel as a cleaner alternative to traditional kerosene jet fuel.

Jatropha is hailed by supporters as something of a wonder-plant for the oil that can be extracted from its seeds. Supporters emphasize it grows where other plants don’t and isn’t edible, therefore doesn’t leave anyone hungry the way biofuels from crops like corn might do. A drawback: The cost is twice that of traditional fuel.

In recent months, jatropha blends, now governed by a global standard, have fueled jet flights over the Atlantic and even powered fighter planes. For selected European carriers, biofuel is becoming part of the everyday operation, in particular at KLM Royal Dutch Airlines and Deutsche Lufthansa AG.

China’s one-hour flight on Oct. 28 in the airspace above Beijing was run in coordination with a number of companies, plus the General Aviation Administration of China.

The plane was operated by Air China and powered by United Technologies Corp. Pratt & Whitney engines – though only one of four was running the biofuel blend.

Honeywell International Inc. and PetroChina Co. cooperated on the fuel production.

Boeing’s Mr. Allen cheered the flight as an “A-Z biofuels test,” from “growth and harvest up through take off and landing.” He quipped, “This is about biofuels with Chinese characteristics.”

While Beijing hasn’t fixed plans for widespread adoption of aviation biofuels – and it faces logistical challenges in doing so – the test bodes well for relatively quick rollout of the program if the government chooses to do so.

Spurring the efforts were presidential-level Sino-U.S. agreements dating to 2009 to cooperate on biofuels, as well as private-public partnerships.

The rush into biofuels by the global aviation industry reflects a firestorm of protest from environmentalist groups that charge the carbon footprint associated with high-speed flight remains too high. Some scoff at biofuel-powered flight, saying it often amounts to PR gimmickry by carriers. Others suggest it is a temporary response to high crude oil prices.

Some critics worry arable land for growing food will be threatened and argue that biofuel production isn’t necessarily as clean as proponents contend.

But the trend is taking hold, according to Honeywell’s chairman and chief executive officer, Dave Cote, who recently told investors he had expected the “brilliant idea” to be hamstrung by infrastructure challenges. “It’s accelerating a lot faster than I expected largely because of pull from the aviation industry as they start worrying about carbon footprint and how do they reduce emissions and all that kind of thing,” Mr. Cote said.

The use of jatropha-based fuel could have particular appeal in China, which has plentiful swathes of dry and barren land to devote to growing the plant. PetroChina has planted nearly 200,000 hectares worth of jatropha in various locations around the country, a company executive told the state-run Global Times last week, adding that China boasted more than 58 million hectares of barren mountain land suitable for the plant, also known as the tung tree.

While the test underscores how China is warming to biofuels and eager to clear its own skies, it is pushing back aggressively on Europe’s strategy to tax the carbon emission of air carriers, as are regulators and carriers in many other countries.

Aviation enthusiasts usually clamor for seats on inaugural flights but China’s biofuel test plane carried only three: the pilots. Flight Captain Zheng Weimin, according to the China Daily, said everything went fine. “I detected no obvious difference in engines powered by the biofuel blend and conventional jet fuel,” he said.

– James T. Areddy. Follow him on Twitter @jamestareddy

Reuters

A real estate agent walks next to empty apartments at a new residential area in Shanghai September 8, 2011.

A weekend scuffle in Shanghai over a drop in apartment prices adds to increasing evidence that China’s efforts to tame a surging property market are having an impact – even as it offers a hint of what could happen if the measures go too far.

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

The local media reports said an unspecified number of people were injured. The property developer, a unit of China Overseas Holdings Ltd., didn’t respond to requests for comment. Photos of the event showed broken glass in the sales office, homeowners marching with banners and a phalanx of police watching over.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district. Longfor didn’t return calls for comment. In an Oct. 20 release, it said it posted stellar sales following an aggressive sales strategy for three of its projects in Shanghai and in the city of Hangzhou.

Beijing has been tightening control of the property market this year to tame surging property prices, amid fears that unaffordable housing could lead to greater social unrest. Measures include a massive 1.3 trillion yuan program to build about 10 million public housing units for low-income earners this year, as well as limits of purchases of second homes and other restrictions.

Data in recent weeks have suggested that the curbing efforts are having an impact. China’s housing prices were largely unchanged in September from a month earlier and grew at a slower pace than in September 2010, indicating Beijing’s efforts to cool the real estate sector are having an impact.

Speculation has turned to whether authorities will now relax restrictions. On Monday, China’s eastern city of Nanjing said it would let residents borrow more money from the city’s housing provident fund to buy “ordinary homes,” in a move designed to give the struggling property sector a boost. While it didn’t elaborate, such homes are often defined as no larger than 140 square meters.

In the southern city of Foshan earlier this month, local officials announced they would lift some property-market restrictions, then postponed that move the next day “to seek further public opinion and to make an assessment on the effects of such measures”, without giving further details.

Chinese Premier Wen Jiabao on Saturday stressed that all levels of government need to reinforce China’s controls of the property market, and that tightening efforts in the property market and the construction of public homes in China are at a pivotal moment.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high. In an informal poll posted on the Twitter-like microblogging site Sina Weibo that had attracted more than 34,000 votes by Tuesday evening, 80% said they that thought it was normal for housing prices to fall and that the Shanghai protestors were just playing up the issue.

“This is an immoral action,” Weibo user Xiaobai Yeyou Naxieshi wrote in one of the 7 million property-related posts Sina had collected Tuesday on a special topic page. “Buying a house is a form of investment and every investment involves risk. If prices didn’t fall, people who can’t afford to buy an apartment would really have to wait forever.”

“Dear Government, can you please cancel my purchase of Petrochina shares? A refund based on the IPO price would be fine,” joked Linshi Renyuan. Petrochina, which debuted on the Shanghai stock market at 16.7 yuan per share in 2007, was trading at to 9.85 yuan per share at the end of the day Tuesday.

That said, a sustained drop in housing prices could spark its own displeasure. It could also spark criticism that Beijing’s policies don’t address long-term issues.

Outspoken Chinese real estate tycoon Ren Zhiqiang, whose properties haven’t been involved in the demonstrations, said on his microblogon Monday, “Does the government really want to solve the housing (issue) for the public or is it just using the property market as a tool to balance between economic growth and the public sentiment?”

“Why doesn’t the government work on land supply, land prices and tax incentives? Why doesn’t it raise wages and lower home purchase taxes, and raise the affordability for the citizens?” Mr. Ren asked.

-- Esther Fung with contributions from Amy Li and Josh Chin

Reuters

China’s top private company, according to the All-China Federation of Industry and Commerce.

China Inc. boasts some of the biggest corporate names in the world today: China Mobile Ltd., PetroChina, Industrial & Commercial Bank of China Ltd, just to name a few. But while the commanding heights of the world’s second-largest economy are still firmly in the hands of China’s state-owned enterprises, who are the overachievers in the private sector?

Two recent surveys try to answer that question. On Wednesday the China Europe International Business School released its eighth annual list of China’s top 100 private listed companies, after surveying the 2010 operating revenue of 1502 firms listed in Hong Kong, the U.S. and mainland China. And in late August the All-China Federation of Industry and Commerce issued its 2011 edition of China’s top 500 private enterprises, also ranked by operating revenue (pdf in Chinese).

The definitive word on who is the greatest of them all probably goes to the ACFIC, a quasi-government industry group. With the private sector’s great and good – many of whom are closely held – among its members, it can get the inside word on how much private firms are actually making. Still, some firms are notably absent from the list such as banks and financial institutions.

Ping An Insurance (Group) Company of China Ltd., which tops the CEIBS survey, doesn’t make an appearance on the ACFIC list. Instead ACFIC ranks telecommunications-equipment maker Huawei Technologies Co. as top dog, although its private status has been questioned by governments in the West wary of its seemingly close relationship with Beijing. Steelmaker Jiangsu Shagang Co. Ltd. comes in at number two on the ACFIC list, and electronics and home appliance retailer Suning Corp. comes in third.

CEIBS ranks Suning’s listed unit, Suning Appliance Co. Ltd, second.

The CEIBS survey is limited in that it only looks at listed firms, but its value comes in comparisons it makes with listed state-owned firms. According to CEIBS, China has 8.4 million private enterprises accounting for 74% of the country’s total number of firms. But if the earnings of publicly traded firms are anything to go by, state-owned firms still dwarf the private sector in size with the average listed private company generating only about 25% the total net profit of an average listed state-owned firm. However, private firms saw faster revenue growth as a group — 21.46% against 18.88% for state owned firms.

The thing that jumps out from both lists is the number of names from the consumer and retail sectors, areas in which state firms play less of a role. Home appliance makers Qingdao Haier Co. and Gd Midea Holding Co., and dairy producer China Mengniu Dairy Co. made the top 20 of the CEIBS list, and car company Zhejiang Geely Holding Group Co., food processor Yurun Group and beverage maker Hangzhou Wahaha Group Co. were in the ACFIC’s top 20.

Few are household names outside of China yet. But as a primer on the Chinese brands that could one day be advertising on television screens and magazine in Europe and the U.S., the lists offer an interesting snapshot.

– Dinny McMahon