China opens up infrastructure to private capital

Beijing’s move to allow private capital investment in infrastructure projects underscores its determination to prop up growth.

The decision by China’s State Council to allow private capital investment in infrastructure is another reform designed to spur the country's slowing growth.

China's government will roll out 80 major projects in infrastructure areas to private sector players, according to a statement announced after a State Council meeting on Wednesday, hosted by Premier Li Keqiang.

The projects, all in sectors that were previously dominated by state-owned enterprises, range from railway, port construction, IT infrastructure and clean energy projects such as hydro-electricity, wind-power and photovoltaic power, oil and gas pipelines and storage facilities, to coal chemical and petrochemical industries.

All projects will be open to public bidding. Beijing will encourage private capital to participate in the construction and operations of those projects through joint ventures, sole proprietorship and franchising, the statement said.

Furthermore, the government promised to consider allowing private capital into other sectors such as oil and gas exploration, public utilities, water conservancy projects as well as airport construction.

Credit Suisse research analysts picked out companies likely to attract this new influx of private capital, such as Beijing Enterprise, which the analysts expect to consolidate its solid waste treatment business, as well as China Resources Power, which Credit Suisse predicts will spin off its wind power businesses.

The meeting also announced a series of guidelines to facilitate business investment, including decentralising approval authority and simplifying approval procedures.

Analysts and economists in general regard the 80 projects as a stimulus that will stabilise growth and accelerate reform of China's investment and financing mechanism.

“These projects will help private capital entering sectors which may be naturally monopolistic, and where the government and state-led firms have dominated in the past,” said Qu Hongbin, co-head Asia economy research and chief China economist with HSBC in a research report.

Opening up more attractive investment areas for private capital will help to invigorate the economy and avoid a further build up of government debt, according to Chang Jian, chief China economist with Barclays.

The announcement comes after a batch of new reforms and measures taken by the government and SOEs.

On April 9, China Railway Corp announced that this year it wants to upgrade fixed asset investment (FAI) in railways to Rmb720 billion ($118 billion) from Rmb700 billion, including Rmb70 billion from local and private capital.

Five provinces including Guangdong, Hainan and Guizhou have released lists of proposed construction projects involving investment totaling more than Rmb7 trillion and focusing on areas such as infrastructure.

Some large SOEs such as Sinopec and Citic Group have announced plans to introduce private capital. Sinopec will spin off its marketing unit with advisory aids by Bank of America, CICC, Citic Securities and Deutsche Bank, while Citic is injecting assets into a Hong Kong-listed subsidiary and selling shares to the public via a share placement arranged by China Securities and Citic Securities International.

Some analysts also point out the downside of the policies. "The role of the government in these projects hasn’t been identified clearly and there are risks in realisation of returns from the projects. Private capital will be very cautious in entering such projects,” Hu Ruili, an analyst with Hubei-based Changjiang Securities, told FinanceAsia.

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