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Why is China's private investment optimistic about infrastructure?

(People's Daily Online)    09:58, May 26, 2015

In recent years, China's private investment has continued to rise, especially in infrastructure, reflecting the fact that the country's investment structure and growth momentum are being steadily improved. In the future there will be further opening of private capital policies.

More active investment in wider channels

A study conducted by China International Capital Corporation Limited (CICC) shows that private investment in infrastructure made up 22 percent of total infrastructure investment in 2012, and this proportion increased to 26 percent in 2014. The figure is expected to reach 30 percent this year.

Data from the National Bureau of Statistics indicate that private investment in fixed assets in the first quarter of 2015 was more than 780 million yuan, a nominal growth of 12.7 percent, accounting for 65.3 percent of the total investment in fixed assets. It is clear that private investment has become an important pillar of total investment.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told People's Daily Overseas Edition that private investment has become increasingly active due to its internal demands and to policy support: “For a long time, China's private capital lacked broad and diversified investment channels; many idle funds faced difficulties in finding investment and maintaining value. Therefore, private capital has a strong drive to find returns. At the same time, seveal recent policies are opening channels to import private capital into the real economy.”

Infrastructure investment is favored by its stable returns

It is estimated that China's private investment in infrastructure in the first quarter grew year on year by 32.8 percent, much higher than the growth rate of total infrastructure investment (22.8 percent) and the growth rate of public sector investment (19.4 percent). Transportation, warehousing, water resources, and electricity have all become the focus of private investment.

Under the funding mode of public-private partnership (PPP), social capital will undertake most of the infrastructure work including design, construction, operation and maintenance, and gain returns through user fees and government subsidies, while the government is responsible for regulating and monitoring the price and quality of infrastructure facilities and the services provided.

Dong Dengxin noted: "On the one hand, private capital is more attentive to long-term returns and the stability of investment income; on the other hand, infrastructure is closely related to quality of life issues; that is why it has secured market demand and investment. Therefore, compared to the current real estate industry that carries a strong element of risk and income uncertainty, the infrastructure sector is more favored by public funding."

A bigger development space due to attractive policies

China's cabinet has released two guidelines and a string of measures to encourage more use of PPP to fund costly infrastructure and public service projects, in order to improve the supply and efficiency of public goods and services, and ensure common benefit to both social capital and the public.

Minsheng Securities believes that to achieve the target GDP growth of 7 percent this year, the growth rate of infrastructure investment should reach at least 25 percent, to 14 trillion yuan, which means infrastructure investment in the last three quarters will have to surpass that of the first quarter. CITIC Securities estimates that there will be 1.6 trillion yuan of potential PPP financing needs in 2015.

Dong Dengxin pointed out that private investment will ultimately replace public investment and become the main source of infrastructure investment. China's investment structure will thus become healthier and more rational.

This article was edited and translated from 《民间投资为何看好中国基建》, source: People's Daily Overseas Edition, author: Wang Junling.

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