New regulation released on government investment

By May 6, 2019 May 8th, 2019 Public

News: China’s State Council released a new regulation on government investment on 5 May. It draws out a clear-cut investment scope, and specifies that for any investment plan to get approved, it must align with national economic and social development goals. Moreover, budgetary constraints are also hardened on government investment funds, which are now prohibited from being raised through illegal borrowing. The new regulation will come into effect on 1 July 2019.

Quick Take: This is yet another effort to tackle down China’s rampant borrowing and risky lending practices, as well as the country’s alarming local debt issue over the years. The enormous amount of off-balance-sheet local debt, mostly originated from local governments’ unsafe financial operations and reckless investments to hit GDP targets in previous years, has become a grave concern especially amid the economic slowdown. Struggling to maintain stability in the economy while fendig off such potential threats, the central government is now toughening up its hold in financial activities. Following the regulation, investments will now be mostly directed to public sectors including infrastructure facilities, agricultural sectors, social services, and environmental protections etc.