The State Council's move to boost capital construction and stabilize investment

On November 13, Premier Li Keqiang presided over the executive meeting of the State Council, at which it was decided to improve the capital system of fixed asset investment projects, achieve the control of retention and differential treatment, promote effective investment and strengthen the organic combination of risk prevention. It was proposed at the meeting that the minimum capital ratio of some infrastructure projects should be reduced from 25% to 20%; for the infrastructure projects of road, railway, urban construction, logistics, ecological environment protection and social livelihood, the minimum capital ratio can be appropriately reduced to no more than 5 under certain premise Percentage point. Luo Zhiheng, assistant to the president of Evergrande Research Institute, told the daily economic news that at present, there is a great downward pressure on the economy. Infrastructure investment is restricted by the lack of local financial resources and strict control of implicit debts, and there is a lack of growth in some places. Reducing the minimum capital ratio of the project will help to expand the investment scale of the infrastructure project and strengthen the counter cyclical regulation. In addition, the reduction of the minimum capital ratio of the project is mainly focused on the areas with complementary board and effective investment demand, and no adjustment is made to the areas with excess capacity, which is conducive to increasing the supply of public goods and optimizing the structure of investment supply.

According to the notice of the State Council on adjusting and improving the capital system of fixed asset investment projects (GF [2015] No. 51), the minimum capital of urban rail transit projects is 20%, that of port, coastal and inland river shipping and airport projects is 25%, and that of railway and highway projects is 20%. The executive meeting of the State Council decided to reduce the minimum capital ratio of port, coastal and inland navigation projects from 25% to 20%. At the same time, on the premise of clear investment return mechanism, reliable income and controllable risk, the minimum proportion of capital can be appropriately reduced by no more than 5 percentage points for the infrastructure projects in the areas of roads, railways, urban construction, logistics, ecological environment protection, social livelihood, etc. In recent months, the growth rate of infrastructure fixed asset investment has gradually picked up. Data shows that from January to September this year, infrastructure investment (excluding power, heat, gas and water production and supply industries) increased by 4.5% year on year, 0.3 percentage points faster than that from January to August. He Daixin, deputy director of the Financial Research Office of the Financial Strategy Research Institute of the Chinese Academy of Social Sciences, told the daily economic news that the key role of reducing the capital ratio of some projects is to stabilize growth, especially in the current economic situation Infrastructure construction is a key area for steady growth. In addition, this is also conducive to the faster access of social capital to these projects, thus leveraging more capital to participate in project investment. The executive meeting of the State Council also pointed out that in the field of infrastructure and industrial projects encouraged by other countries, capital can be raised by issuing equity and equity financial instruments, but not more than 50% of the total project capital. Local governments can use financial funds to raise project capital as a whole.

The meeting emphasized that we should strictly standardize management and strengthen risk prevention. Project loan funds, non-conforming shareholder loans, "real debt of famous shares" and so on shall not be used as project capital, capital raising shall not increase the implicit debt of local government in violation of regulations, shall not violate the relevant requirements of asset liability ratio of state-owned enterprises, and shall not be in arrears of project funds. Jin Yongxiang, chairman of Dayue consulting, told the daily economic news that it is allowed to issue financial instruments to raise no more than 50% of the capital. This arrangement will improve the investment capacity of social capital, have great significance for stable investment and growth, and also promote the development of private enterprises with weak capital strength. He Daixin told reporters that the biggest difference between equity type and equity type financial instruments and bank loans is that bank loans need to repay principal and interest when they are due, while equity type and equity type investments do not need to bear too much pressure of short-term repayment. However, he Daixin also pointed out that the proportion of equity type and equity type financial instruments to raise funds should not be too high, otherwise once the investors occupy too much capital, it will affect the enthusiasm of social capital, because the recovery cycle of these public projects is generally long. On the one hand, equity financial instruments can meet the basic requirements of project capital, i.e. non debt capital; on the other hand, they can play the role of market supervision in the financial market, Luo Zhiheng told reporters.