Local govts roll out new investment projects

Private capital seen vital in tackling economic slowdown

Local governments are rolling out trillions of yuan worth of projects and opening them to investment from private sector as a way to tackle the downward pressure on the economy, Shanghai-based newspaper China Business News reported Thursday.

In the past three months, 11 provinces and municipalities have announced investment projects worth over 3 trillion yuan ($488.1 billion) to attract social capital, the report said.

During the August-October period, Southwest China's Guizhou Province opened up 20 projects valued at 18.8 billion yuan. The province that made the largest move is Sichuan in Southwest China, announcing two batches of 336 projects totaling 900 billion yuan.

These projects fall into a dozen of categories including transportation, water conservancy and energy. The projects with the largest planned sums of investment are mostly related to infrastructure, notably railways.

In less than two weeks' time, the National Development and Reform Commission approved six railway projects that will cost over 200 billion yuan.

These railway projects are located in Southwest China's Chongqing Municipality, Yunnan Province and Guangxi Zhuang Autonomous Region, North China's Inner Mongolia Autonomous Region, Northeast China's Liaoning Province, and Central China's Henan and Hunan provinces.

Ma Hong, an analyst with Shanghai-based CBI Research Center, said the Chinese hinterland has some growth potential in terms of infrastructure and the moves indicate governments' intent to underpin economic growth.

"But as a measure to address slowing GDP growth, increasing investment is the least effective way, compared with expanding exports and consumption," Ma said.

Cui Jun, a professor at the Renmin University of China in Beijing, said that exploring ways to tap China's ample cash supply from the private sector is reasonable, given the current economic situation marked by the local debt issue.

Chinese local governments had accumulated outstanding debt of 17.9 trillion yuan by the end of June 2013, up 67 percent from end of 2010, according to official data.

However, private investors seem to lack enthusiasm. The Chuannan [South Sichuan] Intercity Railway Project, for instance, could not attract investment from private sector, despite promotional efforts by the local governments.

"Low profit and a long pay-off time will deter social capital, and private sector enthusiasm will be determined by the level of participation in management of these projects, such as how to run the real estate projects along the constructed railways," said Ma.

Cui suggested implementation of a new financing mechanism known as Public-Private Partnership (PPP), believing that it can solve the financing issues for local governments.

"Under the conventional financing model, the money flows within the State sector, with government at one end and State banks at the other. Private capital is not included in the game," Cui said, noting that PPP is more inclusive and distributes benefits among stakeholders.

On the other hand, private investors are scared away when they find they are the only players in some projects. So infrastructure, which has the endorsement and participation of governments, is a good area to start with, Cui said.