Getting a handle on flow of hot money

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Visitors at a real estate expo in Wenzhou, Zhejiang province, check out property investment opportunities in the city. [China Daily]

Visitors at a real estate expo in Wenzhou, Zhejiang province, check out property investment opportunities in the city. [China Daily]

Funneling funds

To prevent more coal mine accidents, the Shanxi government last year reshuffled the industry, demanding that small and medium-sized companies be merged.

"Wenzhou private investors lost more than 20 billion from Shanxi mining industry," said enterprise development association chief Zhou.

The central government has also unleashed policies this year to cool down the overheated property market, meaning even more private capital is now burning holes in investors' pockets. "Capital just sat there waiting for the right investment opportunity," said Zhang in the city's financial office.

Conditions suggest this could prove a boon for sustainable, long-term projects.

After the two State Council notices, both the Ministry of Industry and Information Technology and the Commission for Science, Technology and Industry for National Defense have pledged to give private enterprises equal opportunities to bid with SOEs for military contracts.

In the long run, the new policy will help make industries traditionally dominated by SOEs more efficient through competition, said Zhu Jianfang, chief economist at Citic Securities.

He added that opening up the sectors that cover health and public facilities will increase supply and better meet the demands of residents.

Most industries involved, however, have a relatively high entry level that requires large-scale capital, according to Shi Jinchuan, a professor at Zhejiang University, which means the major challenge will be accumulating the scattered, small capital in the private sector to become a major investment force to rival SOEs.

Zhou Guanxin, director of the Zhejiang Federation of Industry and Commerce's research office, said authorities must adopt innovative measures to channel the money, such as setting up private equity funds.

Investors can also be encouraged into the SOE-monopolized sectors through joint venture projects, which will initially strengthen ties and help private firms gain valuable experience, he added.

Wenzhou Private Capital Investment Services Center was also set up on June 26 to act as a funding platform for enterprises seeking capital. More than 800 projects have already been registered, as well as over 60 investors offering a combined total of 20 billion yuan, according to Huang Jianshe, manager of its project department.

"That amount is only the tip of the iceberg in Wenzhou," he said. "Wenzhou people have enough money but not enough projects to invest."

The center is now working with Wenzhou officials on a program to funnel an estimated 2 billion yuan into a comprehensive tourism development, added Huang.

On July 29, the Bank of China Group Investment and Zhejiang Railway Investment Group also jointly set up a fund. Both injected 1 billion yuan each, with a view to attract more private capital for railway construction, the maritime industry, health care and new energy projects.

Entrepreneur Zeng Changbiao is among a group of 10 businessmen in Zhejiang province who have set up a private equity fund worth 1 billion yuan.

"We have already invested in a few new energy projects and some of them are expected to go public in the future," he said, adding: "How successful you become mainly relies on your business acumen."

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