Government turns to private capital

Southwest China's Sichuan Province promoted 2,242 projects Monday and encouraged private investors to invest in these projects, joining many other provinces and regions in attracting private capital to revive the sliding economy.

The projects which require 3.67 trillion yuan ($582 billion) of investment are mainly in the areas of agriculture, transportation and urban utilities construction, business portal ifeng.com reported Monday citing Tang Limin, director with the Sichuan Development and Reform Commission.

Recently there had been numerous media reports that the National Development and Reform Commission (NDRC) had granted approval to a number of local government projects in order to rejuvenate the faltering economy.

The NDRC had approved projects with total investment value of 7 trillion yuan since early May, Chinese website 163.com reported citing remarks by Wei Jie, a professor at the School of Economics and Management with Tsinghua University, at a forum Sunday.

The NDRC could not be reached for comments Monday.

"The NDRC's move mainly serves to boost market confidence," Tian Yun, an economist with the China Society of Macroeconomics under the NDRC, told the Global Times Monday.

As it is difficult for the government to fund these projects this year and it's also unlikely for China to print more money to boost capital due to inflation concerns, many local projects are turning to private investors for funding, Tian said.

Previously, provinces including Guangdong, Zhejiang, and Hubei reportedly opened their local infrastructure projects to private investors.

Fiscal revenue growth slowed to 10.8 percent in the first eight months, down 20.1 percentage points from a year ago, according to the Ministry of Finance.

The local government debts reached 10.7 trillion yuan by the end of 2010, but increased only 300 million yuan in 2011, according to official statistics. About 42 percent of these debts were due in 2011 and 2012, according to the National Audit Office. At a time the local governments are struggling to repay old debts, allowing them to borrow more will create financial risks, Tian said.

It is also unlikely for the policymakers to increase money supply, which triggered high inflation in 2011, he noted.

Private capital seems to be an option, yet private investors would not rush to invest in the short term until they see profitability of the projects, he said.

"The key is how long these projects will be completed," said Lu Ting, China economist with Bank of America Merrill Lynch, if long-term investment is needed for these projects, then the needed funding, currently less than a third of China's 31.1 trillion yuan fixed asset investment in 2011, will not be a problem.