The State Council focuses on stabilizing investment: the minimum capital ratio of ports and other shipping projects is reduced to 20%, and the real debt of famous stocks shall not be used as the capital of the project.
The executive meeting of the State Council called for a reduction in 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 that make up for the shortcomings, under the premise of a clear return on investment mechanism, reliable returns and controllable risks, the minimum proportion of capital can be appropriately reduced by no more than 5 percentage points. In addition, industry projects encouraged by the state can raise capital through the issuance of equity-based and equity-based financial instruments.
On 13 November, Premier Li Keqiang presided over an executive meeting of the State Council, which decided to improve the capital system for investment projects in fixed assets, maintain and control them, treat them differently, and promote the organic combination of effective investment and risk prevention.
The meeting proposed 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.
Luo Zhiheng, assistant director of the Evergrande Research Institute, told the Daily Economic News that the current downward pressure on the economy is greater, infrastructure investment is restricted by insufficient local financial resources and strict control of hidden debt, and there is a lack of growth in some places. On the other hand, reducing the capital ratio of projects will help infrastructure projects to expand the scale of investment and strengthen counter-cyclical adjustment. In addition, the reduction of the minimum capital ratio of the project is mainly concentrated in the areas of making up for weaknesses and the existence of effective investment demand, and no adjustment has been made in the field of overcapacity, which is conducive to increasing the supply of public goods and optimizing the investment supply structure.
To make up for the shortcomings of the project can appropriately reduce the capital ratio
According to the Circular of the State Council on adjusting and improving the Capital system for fixed assets Investment projects (Guofa (2015) 51), in the area of urban and transportation infrastructure projects, The minimum proportion of capital for urban rail transit projects is 20%, for port, coastal and inland river shipping and airport projects is 25%, and for railway and highway projects is 20%.
The executive meeting of the State Council decided to reduce the minimum proportion of capital for port, coastal and inland shipping projects from 25% to 20%. At the same time, on the premise that the mechanism of return on investment is clear, the return on investment is reliable, and the risk can be controlled, the minimum proportion of capital can be appropriately reduced for infrastructure projects such as roads, railways, urban construction, logistics, ecological and environmental protection, and social and people's livelihood. The rate of reduction shall not exceed 5 percentage points.
In recent months, the growth rate of fixed asset investment in infrastructure has gradually rebounded. From January to September, infrastructure investment, excluding electricity, heat, gas and water production and supply, rose 4.5 per cent year-on-year, 0.3 percentage points faster than in January-August, the data showed.
What impact will the reduction in the capital ratio of some infrastructure investment projects have on driving infrastructure investment?
He Daixin, deputy director of the Financial Research Department of the Institute of Financial and Strategic Studies of the Chinese Academy of Social Sciences, told reporters that a key role in reducing the capital ratio of some projects is steady growth, especially under the current economic situation. Infrastructure construction is a key area of steady growth. In addition, this will also help social capital to enter these projects faster, thereby priing more capital to participate in project investment.
Capital can be raised through financial instruments
The executive meeting of the State Council also pointed out that industry 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.
The meeting stressed the need to 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.
Jin Yongxiang, chairman of Dayue Consulting, told reporters that allowing the issuance of financial instruments to raise no more than 50 percent of the capital, this arrangement will improve the investment ability of social capital and is of great significance to stable investment and stable growth. It is also conducive to the development of private enterprises with weak financial strength.
He Daixin told reporters that the biggest difference between equity-based and equity-based financial instruments and bank loans is that bank loans have to repay principal and interest at maturity, while equity and equity investments do not need to bear too much pressure for short-term repayment.
However, he Daixin also said that the proportion of equity and equity financial instruments should not be too high, otherwise, once investors occupy too much capital, it will affect the enthusiasm of social capital, because the recovery cycle of these public projects is longer.
Luo Zhiheng told reporters that on the one hand, equity financial instruments can meet the basic requirements of project capital, that is, non-debt funds; on the other hand, they can also play the role of market supervision in the financial market. (reporter Zhang Zhongyin)