China Considering Boosting Private Investment

China Considering Boosting Private Investment

China Considering Boosting Private Investment

China’s top economic planning body has suggested more policy tools to reverse the slowing of private investment and bolster economic growth.

The government should further encourage private investment with more preferential policies and remove barriers preventing private companies from entering electricity, telecommunications and other sectors that were once dominated by state-owned enterprises, the policy research department of the National Development and Reform Commission (NDRC) said in an article on its website.

The private sector is a Key pillar to supporting China’s economic growth, generating about 60% of China’s GDP and around 80% of jobs.

However, private investment has been slowing down. It increased by only 2.8% in 1-H, down from 3.9% in the 1st 5 months of the year, and 5.7% in Q-2. This is far lower than the growth seen over the last decade, which was over 20% each year.

More than one third of the decline in private investment this year is due to the slowdown in export manufacturing. Another Key factor is the deterioration in business confidence over the past few years, according to a research note from HSBC.

“Businessmen invest for profit, and it is understandable that they hold up investment when traditional sectors such as manufacturing and real estate now only offer marginal profits due to a lack of innovation,” said Zhang Yong, deputy head of the NDRC.

There is a clear divergence in private investment growth numbers, with investment in emerging sectors such as tourism and hi-tech manufacturing increasing. Output of smart equipment and electronic components in western China’s Chongqing Municipality grew over 40% in 1-H.

China should promote Green, smart and hi-tech manufacturing to upgrade its outdated technologies and develop new ones with independent intellectual property rights, according to the NDRC article.

Private firms have been treated unfavorably, having difficulty raising funds and suffering from heavy financial burdens, according to surveys conducted by the NDRC and other departments in May.

The NDRC suggests setting up policy-based guarantee institutions to offer low-cost guarantee services for small and medium-sized enterprises (SMEs), encouraging private firms to issue bonds, and helping competent players get listed, the article said.

China’s cabinet, the State Council, said last week that inspectors had been dispatched to 7 provinces and municipalities, including Liaoning and Henan, that reported significantly slower private investment, as some local governments were found to have failed to fully implement favorable private investment measures.

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