After tightening the Communist Party\u2019s grip on state-owned enterprises, President Xi Jinping\u2019s administration is signaling an increasing presence in private companies. Xi has called state enterprises the "backbone" of China\u2019s socialist economy. But most of the giants were founded before the boom in technology-driven industries over the past two decades. That\u2019s created a large swathe of the economy that\u2019s largely private - think tech and consumer champions like Alibaba, Tencent and Baidu, along with innovators in sectors from finance to automation. Now, SOEs are on track to take stakes in private companies. \u201cChina wants to maintain state control over every aspect of the national economy, and it needs to keep up with the changes in the economic structure," said Chen Li, a Hong Kong-based equity strategist at Credit Suisse Group AG. \u201cHow can it overlook the most important industries to the future economy?" Profit Rich Much of the overhaul of state-owned enterprises under Xi has focused on a consolidation in the hundreds of sprawling units across the country, such as those that have reshaped the shipping and train-making industries. But a lesser-noticed part of the broad "mixed ownership" initiative features SOEs being encouraged to take stakes in private companies. Developed-Nation Status This part of the initiative has yet to gather pace, though equity strategists anticipate moves to come. They would showcase how China continues to develop its own path toward developed-nation status - not entirely state dominated, but with more control by political authorities than in countries like France that have nurtured state champions. The head of the Beijing agency that oversees China\u2019s SOEs, Xiao Yaqing, reiterated the push in a People\u2019s Daily article on state enterprise reforms Dec. 13. The private stakes will be acquired through various means, he and other top officials have said. The mechanism has already been applied in the case of the state\u2019s crackdown on financier Xiao Jianhua\u2019s Tomorrow Holding Co. empire. The government ordered the holding company to divest from many of its financial assets, people with knowledge of the matter said this month. State-owned Citic Guoan Group Co. bought a $1.4 billion stake in Hengtou Securities Co. - known as Hengtai on the mainland - with a large part of the purchase coming from Tomorrow Group. Investors applauded the move, in a sign of what could happen when the state invests elsewhere. Hengtou has jumped more than 20 percent this year after announcing the stake sale. "SOEs will be of increasing importance in the Chinese economy - it\u2019d be a good trade to buy shares of the target firms, even if you just bet after the actual investments" by the state, said Hao Hong, a Hong Kong-based strategist with Bocom International Holdings Co. Sectors that SOEs are likely to target include technology, internet, semiconductors, high-end manufacturing and national defense, Hong said. Such moves would come after the Communist Party in 2016 pressed SOEs to give it greater oversight of management decisions. The Wall Street Journal reported in October that the government had pushed some of the biggest tech companies to offer the state a stake. "Some private companies would probably like to have some state investment - it could be helpful for them" in competing for government business, said Ether Yin, a partner at research firm Trivium China in Beijing. "It kind of cuts both ways," however. Veto Powers One area to watch would be if the state interest were to seek veto powers over some decision making at the private companies, Yin said. The government hasn\u2019t hidden its intentions to have greater say over Chinese internet companies, for example, he said. Private companies have also been encouraged to take stakes in SOEs - such as in a deal last year when Internet champions Tencent Holdings Ltd. and Alibaba Group Holding Ltd. participated in an $11.7 billion share sale by China\u2019s second-largest wireless carrier. That move followed revelations of falsified revenue figures at the state company that highlighted corporate-governance concerns. Given that the private sector has long been more profitable than the state one, deploying more of the country\u2019s financial resources into private companies - rather than reinvesting within the state sector - could be a positive for the economy, according to Aidan Yao at AXA Investment Managers. "Many new-economy industries are dominated by private firms with minor government influence, so if the SOEs are to take stakes in those industries, it will help them gain some influence and share the fruits of economic rebalancing," said Yao, a senior emerging Asia economist at the AXA unit in Hong Kong. "For investors, you\u2019ll want to invest with the government."