Big deal! The minimum capital ratio of infrastructure investment can be reduced by 5 percentage points, and equity instruments can raise half of the capital.
Infrastructure project capital ratio cut "boots" finally hit the ground.
On November 13, Premier Li Keqiang presided over an executive meeting of the State Council, according to the Chinese Government Network. The meeting decided to improve the capital system for investment projects in fixed assets, maintain and control them, treat them differently, promote effective investment and strengthen the organic combination of risk prevention.
The first is to reduce the minimum capital ratio for some infrastructure projects. Reduce the minimum share of capital for port, coastal and inland shipping projects from 25 per cent to 20 per cent. For infrastructure projects in the areas of highway, railway, urban construction, logistics, ecological and environmental protection, social and people's livelihood, on the premise of a clear mechanism of return on investment, reliable returns and controllable risks, the minimum proportion of capital can be appropriately reduced. The rate of reduction shall not exceed 5 percentage points.
Second, industrial projects in the field of infrastructure and other countries that encourage development may raise capital through the issuance of equity-based and equity-based financial instruments, but shall not exceed 50% of the total capital of the project. Local governments may co-ordinate the use of financial funds to raise project capital.
Third, we should strictly standardize management and strengthen risk prevention. Project loan funds, non-compliant shareholder loans and "real debts of famous shares" shall not be used as project capital, the raising of capital shall not illegally increase the hidden debts of local governments, and shall not violate the relevant requirements for the asset-liability ratio of state-owned enterprises. No arrears of project payment shall be allowed.
Dayue Consulting Chairman Jin Yongxiang, who has been engaged in consultation on many infrastructure projects, analyzed the first financial and financial affairs, and the policy combination was stronger this time. On the one hand, once again, the minimum capital ratio of some infrastructure projects will be reduced by up to 5 percentage points. On the other hand, equity-based and equity-based financial instruments are allowed to raise up to half of their capital. In port infrastructure projects, for example, the minimum capital ratio is reduced from 25 per cent to 20 per cent, and then up to half of the capital can be borrowed through compliant financial instruments, equivalent to 10 per cent of the actual own capital. This will be conducive to the promotion of major infrastructure projects, expand the investment capacity of social capital, and improve the performance of enterprises while stabilizing investment and growth.
The capital system of fixed assets investment projects was established in 1996, which refers to the amount of capital subscribed by investors in the total investment of investment projects, which is non-debt funds for investment projects. The purpose of the project capital system is to deepen the reform of the investment and financing system, promote the improvement of investment efficiency and prevent financial risks.
China has adjusted the capital ratio three times: the first is 2004, the purpose is to deal with the overheating of investment, generally adjust the capital ratio from low to high; The second was in 2009, which was adjusted from high to low in order to deal with the international financial crisis and promote economic development.
The third time is 2015. In order to promote the steady growth of investment, China will reduce the minimum capital ratio for fixed assets investment projects in ports, coastal and inland shipping, airports and other fields, which are related to the national economy and people's livelihood, from 30% to 25%. Railway, highway and urban rail transit projects were reduced from 25% to 20%, and corn deep processing projects were reduced from 30% to 20%. The capital ratio of urban underground integrated pipeline corridors and much-needed parking lot projects, as well as major national projects approved by the State Council and under special circumstances, may be appropriately reduced compared with the provisions.
This time, the capital ratio of infrastructure projects related to the national economy and the people's livelihood will be reduced again, which will help to promote the steady growth of investment.
It is worth noting that this reduction in the capital ratio of projects continues to adhere to the principle of "supporting and controlling". It is not a general adjustment, but a structural reduction in the capital ratio of those projects that need to be developed. The proportion of projects that need to be controlled and overcapacity will remain the same.
For example, the current 30% to 40% higher capital ratio requirements were strictly implemented in 2015 for overcapacity industries such as steel, cement, electrolytic aluminum, coke and polysilicon. These industries are also not involved in the reduction in the capital ratio.