Understanding China’s New Measures to Boost Private Investment
China’s macro planner, the NDRC, has released new measures to boost private investment. China’s smaller private companies are integral to the economy, but the sector’s recovery since the COVID-19 pandemic has been sluggish. The new measures seek to boost private investment in China by identifying and promoting major investment projects and providing financial and administrative support.
The National Development and Reform Commission (NDRC), China’s macroeconomic planner, released a notice with new measures to boost private investment.
The notice was released less than a week after the State Council, China’s cabinet, released a set of opinions calling for government agencies to implement measures to boost private investment.
The efforts to provide more support for private investment are seen as a means of boosting China’s economy in the coming months and years, and a response to the weakening economic recovery recorded in the H1 2023 economic data released on July 17.
Private businesses have struggled to fully recover following the COVID-19 pandemic, posing a challenge to the country’s overall economic growth. According to the H1 2023 data, the value-add of state-owned enterprises (SOEs) grew by 4.4 percent year-on-year, compared to just 1.9 percent for private companies. In addition, fixed asset investment (FAI) in the first half of the year grew by 8.1 percent year-on-year for SOEs but fell by 0.2 percent year-on-year for private companies.
China’s private small and medium-sized enterprises (SMEs) are extremely important to the economy, having the so-called “56789” characteristics – contributing to over 50 percent of China’s tax revenue, over 60 percent of GDP, over 70 percent of technological innovation, absorbing over 80 percent of urban employment, and accounting for over 90 percent of all businesses.
The notice includes 17 measures for boosting private investment. These include identifying and promoting key projects for private investment, providing the necessary financial and resource support, and fostering a healthy and transparent environment for private investors.
Encouraging private capital in major national and key industry supply chain projects
One of the key strategies for boosting private investment in China is to identify and promote major projects that are suitable for private investment.
Specifically, the measures propose boosting private investment in “key industries”. According to the measures, the NDRC will select certain sub-industries in fields, such as transportation, water conservancy, clean energy, new infrastructure, advanced manufacturing, and modern agriculture. They will specifically target sectors that have large market space, strong development potential, are in line with national major strategic and industrial policy requirements, and are conducive to promoting high-quality development.
Regional and local departments will then be responsible for supplementing and improving local policies for these industries and enhancing promotion and communication to facilitate the implementation of private investment.
In addition, the notice states that provincial development and reform commissions should create lists of three types of projects that are recommended for private investment. These are:
- Major national projects and projects that fill development gaps;
- Key industry chain and supply chain projects, selected based on local conditions; and
- Franchise projects that are fully user-paid.
All of these projects must have clear investment return mechanisms, good investment returns, and be suitable for private capital.
In a press meeting to promote the notice on boosting private capital, the Director of the FAI Department of the NDRC Luo Guosan stated that the NDRC had identified over 2,900 investment projects with a total investment of around RMB 3.2 trillion (US$447.5 billion) for potential private investment. These projects had been recommended by local departments.
Finally, the measures propose the creation of a unified platform for promoting the various projects that are recommended for private investment. This platform will publish information on approved projects for private investment, as well as any support policies attached to the projects. This platform should be updated regularly with the latest projects and support policies available.
Providing financial and resource support for private investors
In order to follow through with the promotion of projects recommended for private investment, the measures also set out a range of support and guarantee policies for investors. This includes optimizing financial support, providing resource guarantees, leveraging credit information, and promoting the issuance of real estate investment trusts (REITs) for infrastructure projects. These measures aim to facilitate the implementation and healthy development of private investments.
In addition to the unified platform mentioned above, the notice also announces that the NDRC will evaluate private investment projects recommended to them by local departments, and compile projects that meet certain standards in a database. The notice calls for establishing both a national database managed by the NDRC and regional ones managed by local departments. The projects in this database will be provided to relevant financial institutions and departments to coordinate and strengthen their financing and guarantee basic resources.
The financial institutions, which may include policy banks, state-owned commercial banks, and joint-stock banks, can then independently review the projects and provide financial support “based on market principles”.
At the press briefing, Luo Guosan stated that the NDRC had already established a pilot cooperation mechanism with seven commercial banks on July 7. These banks are the China Development Bank, the Agricultural Development Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, and China CITIC Bank.
He added that the NDRC is still in the process of compiling the list of private investment projects to be pushed to banks and will continue to guide banks to increase their loan support for private investment.
To guarantee basic resources for private investment, the projects in the database will be included in the national land guarantee mechanism, which will require the Ministry of Natural Resources to ensure adequate land resources for the fulfillment of the projects. The notice also calls on provincial departments to ensure equal treatment for private investors during procedures, such as land use, environmental impact assessments, and energy conservation.
The notice also states that the NDRC will encourage the issuance of infrastructure REITs for more eligible private investment projects, diversifying asset types, and expanding investment and financing channels for private enterprises. Provinces are called upon to coordinate with relevant departments to facilitate the issuance of infrastructure REITs for qualified projects.
The NDRC has already recommended 35 infrastructure REITs projects to the China Securities Regulatory Commission (CSRC), according to Han Zhifeng, deputy director of the NDRC’s FAI department. Thirty-two of these projects have been listed, and involve 28 REITs products, with a total offering fund of RMB 97.5 billion (approx. US$13.63 billion).
He added that the number of private REIT projects is relatively small, but that recent reforms may encourage more private companies to take this financing route. This includes a decision in March 2023 by the NDRC and the CSRC to expand the scope of projects that can be financed by REITs to include consumption infrastructure. This may boost interest in REITs among private companies, as they are more likely to invest in projects such as shopping malls than traditional infrastructure projects.
The NDRC has also been actively reaching out to private companies to boost recognition and understanding of REITs, and providing support for companies in the application process.
Creating a favorable environment for private investment in China
The final section of the notice is concerned with measures to boost the confidence of private investors by ensuring transparency in the implementation of policies. The measures call for provincial development and reform departments to create a fair, transparent, and legal development environment and will conduct follow-up research and inspections to monitor policy implementation and promptly report significant matters to the State Council.
One mechanism to achieve this is to streamline the approval and licensing processes for private investment projects. The NDRC and local departments are tasked with exploring comprehensive evaluation models to improve the efficiency of pre-project work such as pre-acceptance inspections, which should be conducted in stages to expedite the financing readiness of private investment projects.
The measures also seek to improve transparency by establishing channels for addressing issues faced by private investors in the investment process. The unified platform, discussed above, will include a section specifically for the collection of feedback on issues faced by private investors, such as the practice of 以罚代管 yi fa dai guan (in which authorities simply mete out fines to companies that have committed a violation, instead of taking effective management and supervision measures to ensure they correct their behavior), hidden barriers to market access, unfair treatment in bidding processes, and slow progress in pre-project procedures.
In addition, regular surveys will be conducted with designated private companies to listen to their concerns, and regions that have a high prevalence of problems and inadequate problem-solving efforts will be subject to state inspections.
The NDRC will also establish a special investment project within the central budget, and select 20 prefecture-level cities or districts to support every year. Private investment in these areas must be growing rapidly, account for a high proportion of overall investment, show “strong vitality”, and have solid measures in order to be eligible for the program. The relevant localities will use the special funds for the construction of key eligible projects.
Finally, the NDRC will promote and share success stories from different regions through events, press conferences, and the distribution of case studies, with the aim of fostering mutual learning and improving the investment environment.
The impact of new measures on private and foreign investment
Due to the important role that private companies play in China’s economy, increasing private investment has the potential to have a significantly positive effect on the country’s development. In addition, given the diversity of industries and fields that private investment is engaged in, the measures may help to boost hiring in certain industries and provide a boost of confidence among both private companies and consumers.
As the new measures are largely dependent on identifying and promoting high-quality projects that are suitable for foreign investment, their success will depend on how many such projects can be surfaced. This will in part be dependent on how strict the criteria for eligible projects will be, and whether the subsequent support policies are effectively implemented by local governments.
The new measures are aimed at boosting investment for private companies in general, and it is not clear how they may benefit or disadvantage foreign companies. Efforts to improve transparency and fairness in areas such as bidding processes and financing may benefit foreign companies too if these policies are extended to them as well, as it will provide them with new opportunities and financing options.
However, foreign investors may face additional barriers if the projects that are selected for promotion are not eligible for foreign investment.
At the same time, it is worth noting that these measures come amid a broader effort in China to improve the business environment and boost foreign investment as well. There is a significant overlap between measures proposed to increase foreign investment and those proposed to boost private investment, such as improved market access, a fairer playing field in government bidding, accelerated administrative procedures, and better access to financing.
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