Beijing Lures Private Investors to Reignite Infrastructure Growth
- China is shifting from state-led spending to attracting private investment in major infrastructure projects.
- Projects include energy, transport, oil and gas pipelines, hydropower, and nuclear power.
- The government will now allow private firms to hold larger stakes—beyond the previous 10% cap—in strategic projects
After decades of funding major infrastructure projects with state money, the Chinese government has zeroed in on private capital as a source of fresh cash for big projects in everything from transport to energy, to power generation, and drones.
In a new policy presented earlier this week, Beijing signaled private capital is now welcome in hydropower, nuclear power, oil and gas pipelines, and water supply, media reported, citing government officials.
“Private investment serves as a key barometer reflecting economic vitality and plays a crucial role in stabilizing growth, employment and expectations,” the deputy director of China’s National Development and Reform Commission said, as quoted by the South China Morning Post.
The changes introduced this week include a prescription for state entities leading projects in a number of areas to carry out a study of the feasibility of private investment for each of these projects. The areas include railways, hydropower, nuclear power, power transmission, oil and gas pipelines, liquefied natural gas import terminals and storage, and water supply
“While encouraging private capital participation in key projects, we also equally support all types of market entities to participate, fostering complementary advantages and common development among diverse forms of ownership,” Guan Peng, deputy director of the Department of Fixed Asset Investment at the NDRC, said as quoted by China Daily.
To take better advantage of this barometer that can stabilize growth—recently uneven in the world’s biggest growth engine—the Chinese government has introduced changes in private company ownership limits in projects that fall within the scope of the new legislation. It has also prohibited the addition of extra conditions for private companies in public tenders on infrastructure projects.
Previously, private companies were not allowed to own a stake higher than 10% in such projects, but with the new rules, they would be able to do just that, after the strict rules led to an outflow of foreign investment over the past few years, Bloomberg noted in its report on the news. This year alone, foreign direct investment is down by 10%, the publication said.
With those limits, Chinese private companies have been reluctant to put their money into such projects, and this appears to have finally drawn the attention of the authorities. In fact, per the People’s Daily, the NDRC has been working to boost private capital participation in infrastructure projects for several years now, allowing private entities to take stakes as high as 20% in some projects, for instance, nuclear power.
These efforts have paid off, according to data for this year, which shows that private investment in infrastructure has gone up by 7%, even if overall it declined amid U.S. President Donald Trump’s trade offensive that had a special focus on China. However, private companies have been finding it harder to stay profitable, which was one big reason for the latest policy changes that aimed to boost their participation in infrastructure and energy projects.
The NDRC boasted it had recommended a grand total of 105 real estate investment trust infrastructure projects to the China Securities Regulatory Commission so far. The projects had raised a combined $29 billion since their listing and were expected to drive five times that amount in project investment.
“We will further improve regular communication mechanisms between government and enterprises, strengthen coordination, and solidly promote the implementation of the Private Economy Promotion Law to facilitate high-quality development of the private investment,” the deputy director of the NDPC’s Bureau of Private Economy, Ling Zhongguo, said as quoted by the People’s Daily.
Going forward, according to some of the reports on the new policy changes, the government would focus on drawing more private capital into energy projects, including everything from oil and gas to electricity transmission, highlighting yet again the significance of that sector.
By Irina Slav for Oilprice.com
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