China to launch key projects, spur private investment

BEIJING Mon Jul 30, 2012 4:19pm IST

A general view of buildings is seen near the Xiangjiang River in Changsha, Hunan province July 25, 2012. REUTERS/China Daily

A general view of buildings is seen near the Xiangjiang River in Changsha, Hunan province July 25, 2012.

Credit: Reuters/China Daily

BEIJING (Reuters) - 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 up 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.

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 news 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 mismatch between the sectors the government would like to open up and the profitable ones that private investors would really like to put their money in.

China signaled 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.

INVESTMENT SPENDING

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 labeling 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 program 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 percent - only just above Beijing's target rate of 7.5 percent.

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 percent.

(Reporting by China economics team; Editing by Nick Edwards)

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