An official with the State Development and Reform Commission (SDRC), who attended the drafting of the scheme, said that the reform aimed to lead social investment into different sectors, introduce market mechanisms in investment, financing, operation and management processes, and accordingly allocate resources with high efficiency.

Meanwhile, The Regulation on Government Investment has also been drafted.

Investment entrance and withdrawal

The basic principles of the planned reform are to let investors decide enterprise operations, enjoy profits and shoulder relevant risks. Under the macro-control policy, the government will bring the market mechanism into full play, and standardize the government investment at the same time. The goal is to establish a new investment financing system where investors can make decisions themselves, and banks can examine lending applications independently as well as allow for multiple financing methods, qualified intermediaries and efficient macro-control from government.

Experts believe that the reform will adjust government's economic policies fundamentally.

The fundamental measure of the reform is to restructure the investment entrance and withdrawal system, which is key to investors, especially for those who start businesses.

Government will go on eliminating all kinds of investment entrance policies: define clearly the industries where investments are encouraged, allowed, limited or prohibited by government; break the industrial monopoly and eliminate local protectionism; set up a financial system which can meet different needs of private investors; perfect the credit guarantee system for SMEs.

As for the preferential tax policy, these enterprises, which invest in government-supported industries, are likely exempt from some enterprise income tax, and investors will be exempt from relevant personal income tax. Chinese government will also deepen the reform of its approval system, lowering operation costs, especially trading costs.

Room for private investment

Since the SARS breakout this spring, Chinese government reduced or exempted tax for SARS-hit industries, and approved the building of some important infrastructural projects. Meanwhile, The State Council made the economic revival plan post-SARS. These moves might be efficient in the short term. However, the fundamental measure, to drive the economy through voluntary investment, is still necessary and urgent.

"China doesn't lack capital, the key problem is to raise the efficiency of capital utilization. The improper resource allocation was the reason for low capital utilization efficiency," said Wu Xiaoling, the vice governor of the central People's Bank of China.

Minister of SDRC Ma Kai viewed the draft reform scheme as an important task for the newly renamed ministry. He promised to further expand the independence of enterprise, reduce the scope and industries of government investment, and simplify approval procedures for better investment environment.

Sources with the SDRC said that the reform aimed to create a fair market environment. Except those industries in which investment are prohibited by law and regulation, competitive sectors, like water supply, public transportation, gas, electricity, heating and environment protection, will be open to all investors.

Develop bond market

The development of a bond market, including treasury bonds, financial bonds, corporate bonds, municipal bonds and mortgage bonds, is a core task of investment financing reform. In China, corporate bonds have been ignored for quite a long time, and there have been no bonds issued by local governments. Experts say that government usually emphasizes stock markets but ignores bond markets, but these measures have handicapped China's growing securities market.

Policy makers now have realized that a mature bond market would reduce the risk of financial systems. Thus, the development of a bond market has become a major task of financial reform.

The bonds issued by local government will be the highlight of reform. Experts say that at least 500 billion yuan (US$60.4 billion) are needed to offset the capital gap of urban infrastructure construction. For example, the scheduled investment of 2008 Beijing Olympic Games is 300 billion yuan (US$36.2 billion), while Beijing's fiscal revenue in 2001 was only 45 billion yuan (US$5.4 billion).

At the beginning of this year, Beijing Municipality once planned to issue Olympic bonds. However, the idea was vetoed by the Budget Law, which prohibited local governments issuing bonds.

Besides, SDRC will increase the issuance of corporate bonds to bolster key construction projects.

(China.org.cn by Tang Fuchun, July 17, 2003)