Reform on investment and financing system to launched

The Economic Information Daily learns that Opinion on Comprehensively Deepening Reform on Investment and Financing System (hereinafter referred to as Opinion) may be launched before the end of 2015, which will further broaden the channels directing financial capitals to the real economy. Meanwhile, central government will be connected with local governments in the online approval and supervision platform for investment projects. 

Xu Shaoshi, head of China's National Development and Reform Commission (NDRC), indicated at a video and telephone conference of the NDRC on Sept. 14 that it is still one of the most important measures to boost investment and stabilize economic growth by continuing the investment and financing system reform and the NDRC will open the channels directing financial capitals to the real economy in the future. According to statistics, the reform has been piloted in Hubei, Gansu, Qinghai, Guizhou, Yunnan and other provinces or regions recently. Moves such as building public-private-partnership (PPP) project library and exploring breakthrough of the investment and financing reform in various fields have obtained support from local governments.

It is learnt that the Opinion may consist of contents including planning and coordinating policies related to PPP, guiding the local governments to carry out PPP projects, and leading the social capitals like insurance funds to inject in the major projects of the state. Liu Jian, inspector of Financial Department of Ministry of Finance (MOF), suggests encouraging participation of institutional investors such as insurance firms and pension funds to improve the financing plight of PPP projects. Liu expressed that in terms of equity financing, due to the limited industrial capital and higher cost of the projects, it will be difficult to implement a great number of PPP projects if the projects are only invested by the industrial capital. Therefore, the participation of institutional investors should be encouraged.

In addition, the tentative for the reform includes adjustment in financial capital investment pattern. Given the market failure in competitive industries, it studies to support the projects through equity investment and other market-based investment instead of direct investment. It will actively promote the PPP mode and put forward method for franchised operation of infrastructure and utility service to stimulate social investment; deepen the reform in railway field by taking full advantage of railway development funds; deepen the reform in highway field and revise regulations on management of toll roads; introduce governmental investment law, study and formulate regulations on management of government approving and filing investment projects and gradually legalize the investment management.

Promoting the transformation and restructuring of local financing platform to realize market-based financing might be also covered in the Opinion. According to the Policy for Finance Supporting Stable Economic Growth, the MOF will redouble support in local financing to guarantee follow-up financing for the project of rebuilding rundown urban areas and other projects under construction and ensure capital sources to be invested in infrastructure so as to facilitate the local governments to hold on to the target of stabilizing economic growth.

Some market participants anticipate that the Opinion might mention how to give full play to policy-based finance. This includes expanding the scale of pledged supplementary lending (PSL), allowing issuing PSL to Export-Import Bank of China and Agricultural Development Bank of China and moderately increasing annual credit quota. It may refer to improving methods of accounting R&D expenditure and expanding corporative R&D expenditure deduction.
As for how to open the channels to direct financial capitals to the real economy, Chen Jingwei, deputy director of investment and financing research center of Chinese Academy of Social Sciences, told that two problems needs to be tackled now. One is to improve the projects to attract financing and the other is to be strict in formulating rules so as to ensure capital security.

NDRC’s another upcoming significant measure for the reform is to strive for the connection between central government and local governments in the online approval and supervision platform for investment projects.