China disciplines "the visible hand" in investment

Xinhua
When it comes to the game between "invisible hand" of the market and "visible hand" of the government regarding investment, China wants the former to play the essential role.
Xinhua

When it comes to the game between the "invisible hand" of the market and the "visible hand" of the government regarding investment, China wants the former to play the essential role, while using the latter more efficiently.

Under the newly-released Government Investment Regulation that will take effect on July 1, government investment or fixed-asset investment using budgeted funds will be channeled to the public sectors where resources cannot be effectively allocated by the market, and mainly target non-profit projects.

This stipulation reflects how the Chinese government defines its relations with the market, marking the latest move of the government to delegate power to optimize the investment environment.

Except for being confined to public sectors, government investment faces tighter scrutiny. For example, a project may have to be re-evaluated if its initial investment estimate exceeds the forecast approved in the feasibility study by 10 percent.

Vanity projects or projects based on whims of officials are strictly banned. Bad investment with no efficiency or simply aimed to make a profit will be shut down, as regular assessments will be conducted both during and after the implementation of a project.

To straighten up investment malpractices, the regulation also prohibits governments from raising investment funds through illegal borrowing and requires all investors to be treated equally when allocating government investment funds.

The primary goal of the regulation is to enhance law-based administration and legalize the use of government investment to allow private investment to play a bigger role.

In the long run, the Visible Hand in the Chinese market will play a more rational role, as the Chinese government has implemented reform to cut red tape, streamline administration and create a level playing field to enhance economic efficiency.

Vice Minister of Commerce Wang Shouwen said earlier that the country would release a shorter negative list for foreign investment in the first half of the year to expand market access for foreign investors.

As the Foreign Investment Law approved by the national legislature will take effect starting from Jan. 1, 2020, the country is mulling supporting regulations and rules to foster a fair, stable, transparent and predictable market environment.

Meanwhile, steadily expanding private investment has been an established policy preference, and a variety of incentives have been provided including encouraging the public-private partnership.

Official statistics from the National Development and Reform Commission showed that private investment surged 8.7 percent year on year in 2018, 2.8 percentage points higher than the overall investment growth rate.

In addition, 62 percent of fixed-assets investment came from private funds in 2018. Investment by governments at various levels took up less than 5 percent of the country's overall investment, mainly going to infrastructure facilities, public service facilities and public welfare sectors.

Although the Chinese government is skilled at long-term strategic planning, such as formulating a master development plan every five years, it tends to refrain from making unnecessary micro-economic interventions.

While developing its socialist market economy, China must ensure that the market plays a decisive role in resource allocation.

A key solution is to reform and optimize government administration by transforming government roles, delegating powers, developing new regulations and building a more service-oriented government.

The Government Investment Regulation includes 39 clauses in seven chapters and lends insight into how the Chinese government positions itself while running the world's largest developing economy.

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