China’s government said on Monday it would make investments in key projects in a bid to encourage private sector finance to play a greater role in developing vital industry sectors including railways, utilities, finance and healthcare.
The announcement, made after a regular cabinet meeting, follows rules issued by China’s top economic planning agency — the National Development and Reform Commission (NDRC) — to open strategic industries presently dominated by state-owned companies to the private sector.
“The cabinet meeting urged various regions and government departments to take candid and effective measures to implement policies to create an environment that is fair, transparent and predictable to all market players, including the private ones,” the central government said in a statement on its website, www.gov.cn.
| GROWTH PUSH China is reducing the role of the state in the economy
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Earlier moves
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On Friday, China allowed more international investors to buy bonds on the nation’s largest debt market and purchase higher-yielding notes for the first time, as the world’s second-biggest economy develops its capital markets.
Participants in the Qualified Foreign Institutional Investor programme are now allowed to buy bonds on the interbank market, the China Securities Regulatory Commission said in a July 27 statement on its website.
Previously, they were restricted to exchange-listed debt, which is less than two per cent of the interbank equivalent.
International investors will also now be permitted to buy bonds of small- and medium-sized companies through private placements, the regulator said. Such securities typically yield more than their counterparts listed on China’s stock exchanges.
On encouraging private investments in key projects, China must “launch some key projects, as soon as possible, to allow private investment in railways, public utilities, energy, telecommunications, financial, health and education industries, in order to set up examples,” the State Council said, after a meeting chaired by Premier Wen Jiabao.
There was no specific mention of the sums involved or if any of the cash earmarked for the projects was net new spending.
The NDRC said last week that it had issued 42 new rules for attracting and removing impediments to private investment.
The push to open state-controlled industries leaves some analysts skeptical and anticipating resistance from state-backed giants which enjoy preferential access to finance and government contracts. “I’m not quite optimistic about the short-term results,” said Zhiwei Zhang, Nomura’s China economist in Hong Kong.
Zhang said there was a mismatch between the sectors the government would like to open and the profitable ones that private investors would really like to put their money in.
China signalled in May that it would boost private investment in the most determined push since joining the World Trade Organisation to reduce the role of the state sector in the economy.
The State Council said China was facing rising downward pressure and it urged industry to hasten the restructuring of Chinese economy and boost investment as well as consumption.
“At a time when the domestic economy faces rising downward pressure, we must take timely and forceful measures to encourage companies to use new technology, new material and new equipment to speed up industry upgrade,” the statement said.
To bolster growth, China has been “fine-tuning” policies since autumn and accelerated the pace recently, cutting interest rates twice in June and early July, fast-tracking investment projects and encouraging energy-efficient consumer spending. Zhang said the recipe to bolster China’s slowing economy in the short run was still heavy state-backed infrastructure investment.
Beijing has so far refrained from labelling any of its policy efforts as outright stimulus.
China’s Communist Party leadership remains acutely sensitive to the inflationary and speculative forces unleashed by the 2008 programme which the government is still struggling to bring back under control, particularly in the real estate sector.
China’s economy experienced its slowest three months of growth in more than three years in the April-June period, which expanded by 7.6 per cent — only just above Beijing’s target rate of 7.5 per cent.
The economy is on track for its slowest full year of growth since 1999, albeit at a rate that economists in a Reuters poll forecast at 8 per cent.
