China to Seek More Private Investment

Sept. 3, 2009
Private firms will face lower taxes and be subject to fewer administrative licensing requirement.

In an apparent bid to balance its path to economic recovery, China is planning to seek more private investment state media said last week.

The National Development and Reform Commission, China's top economic planning agency, has submitted draft rules on the issue to the State Council, or cabinet, the Shanghai Securities News said. Under the rules, private investment will be encouraged in a wider range of sectors including infrastructure, the financial industry, culture, education and public services, which have been dominated by state-owned firms, it said.

Private firms will also get easier access to fund-raising, face lower taxes and be subject to fewer administrative licensing requirements, the report said, without giving further details.

China last year unveiled an unprecedented four-trillion-yuan (US$585 billion) stimulus package aimed at boosting domestic demand as exports plunged.

The world's third largest economy expanded by 7.9% in the second quarter, up from 6.1% in the first quarter, mainly as a result of massive government investment. But economists have argued private investment, which has remained sluggish amid the financial crisis, needs to be stimulated to maintain momentum as the unprecedented amount of government spending may not be sustainable.

In a survey released last month, the All-China Federation of Industry and Commerce said the stimulus package had actually crowded out private firms as loans were increasingly difficult to get from banks focused on state projects.

Wang Yuanjing, a researcher with the NDRC's Investment Research Institute, said it would be "impossible" to achieve long-term "sound and fast growth" on government spending alone. "Government investment can act as an engine, but much larger investment would eventually come from the private sector and the society as a whole," he said.

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