Guideline eyes expanding effective investment

China's newly issued guideline to mobilize existing assets is expected to broaden the channels for private investment and catalyze effective investment, countering the current downward pressure on the economy, experts said.

Their comments were made known on Thursday after the General Office of the State Council, China's Cabinet, unveiled a guideline on Wednesday focused on mobilizing the country's existing assets and expanding effective investment.

Noting that infrastructure and other existing assets will be put to better use and their investment potential further unleashed, the guideline said efforts will be made to boost effective investment in this regard and reduce government debt risks. Specifically, the guideline also calls for a focus on incentivizing the mobilization of existing assets by promoting the use of real estate investment trusts (REITs) and other financial vehicles.

Some of the key existing assets illustrated in the guideline include transportation, water conservation, clean energy, new tourism infrastructure, warehouses and logistics. Shi Yinghua, a professor at the Chinese Academy of Fiscal Sciences, said that after decades of investment, these aforementioned asset categories have comparatively greater space for generating effective investment.

"Existing assets and projects in these areas are usually of a large scale, and possess notable growth potential," Shi said.

She noted that this year, with the COVID-19 resurgence and its related issues, both trade and consumption have shown sluggish growth, while growth in investment remained relatively stronger, making it an even more critical means to stabilize growth this year. Earlier figures from the National Bureau of Statistics showed that China's fixed-asset investment jumped 6.8 percent year-on-year to 15.35 trillion yuan ($2.28 trillion) in the first four months, while consumption contracted over the same period.

The mode of public-private partnerships (PPP) shall be better encouraged in mobilizing existing assets, the guideline said. Localities will be guided to introduce demonstration projects for attracting investment, and all types of investors will be given equal treatment, while market-based operation mechanisms will be improved to raise returns of projects. Meanwhile, investment activities shall uphold the principle of market-orientation and law-based operations, with transaction prices to be determined in an open, transparent manner. It urged that the steady operation of infrastructure should be ensured to safeguard the public interest.

New projects invested by recovered funds will be given access to the funding of special-purpose bonds, the guideline said.

Two recent executive meetings by the State Council reiterated the urgency of stabilizing economic fundamentals and a package of steps was decided upon to bring the economy back to the normal track.

"China has over the years adhered to a macroeconomic policy tone of not flooding the economy with stimulus measures. This time, encouraging PPP cooperation while mobilizing existing assets is expected to attract more social capital to development, and this will work in tandem with this year's central fiscal efforts in driving growth. This will be a healthier move for China's long-term growth," Shi said.