Experts suggest innovating investment and financing models to supplement medium- and long-term funds

Major project construction is entering a "golden period." To accelerate project implementation and remove bottlenecks such as funding guarantees, central and local authorities have recently rolled out intensive deployments. Fiscal, financial, and social capital and other funding channels are joining forces to drive major project construction financing to accelerate. Experts say that to improve the investment effectiveness of major projects, efforts should focus on building a market-led endogenous growth mechanism for investment. Government investment should identify weak areas constraining economic and social development and target them precisely. At the same time, investment and financing models should be innovated to attract more social capital and supplement medium- and long-term funds for major project construction.

Major project construction is an important support for driving investment growth. As a batch of major projects in transportation, energy, water conservancy and other fields advance steadily, infrastructure investment is growing steadily. Data recently released by the National Bureau of Statistics show that in January-May, national fixed asset investment (excluding rural households) was 19,391.7 billion yuan, up 15.4% year on year; up 8.5% from January-May 2019, with an average two-year growth of 4.2%. Among this, infrastructure investment (excluding electricity, heat, gas and water production and supply) grew 11.8% year on year.

At present, a batch of major projects is ready to go. The Shenzhen Development and Reform Commission recently released the "Shenzhen 2021 Major Project Plan," with 536 projects on the list and total investment of 2,826.49 billion yuan, covering transportation, energy, industry, education, healthcare, urban renewal, cultural facilities and other areas. The Henan Provincial Development and Reform Commission recently issued the "Notice on Accelerating the Promotion of Major Project Construction and Reasonably Expanding Effective Investment," accelerating 8,000 "982" projects and 1,371 provincial key projects, striving to complete more than 50% of the annual target by the end of June and fully complete the annual planned investment before the end of the year.

Local planning has first released many favorable signals, but difficulties remain in implementing major projects. Among them, bottlenecks in funding guarantees are prominent. Fan Ruoying, a researcher at the Bank of China Research Institute, said major projects often have public and externality characteristics, and the funds required are large in scale and long in cycle, making project financing difficult. In particular, current financing for major projects still faces problems such as difficulty in determining project profit models and imperfect capital exit mechanisms, resulting in low enthusiasm for social capital to enter.

In response, intensive deployments have been made from the central to local levels, with multiple funding channels joining forces to build financing platforms for major project construction. In terms of fiscal support, central budget investment allocation and local government special bond issuance are being accelerated. Among them, the National Development and Reform Commission has recently issued central budget investment plans for affordable housing projects, national fitness facility shortfall-filling projects and others.

Separately, Ministry of Finance data show that as of June 15, localities across the country had cumulatively issued 1,285 billion yuan of new local government bonds, accounting for 30% of the allocated quota. Industry insiders point out that as local bond issuance expands later, there is considerable room for increased infrastructure-related expenditure. A report recently released by China Chengxin International noted that special bonds, as an important source of funding for infrastructure construction, remain an important focus for filling shortcomings and stabilizing growth during the post-epidemic recovery period. Against the backdrop of stabilizing growth, reducing leverage and preventing risks after the epidemic, special bonds will expand faster during the year and will continue to focus on "two new and one heavy" and livelihood-related construction.

According to Ning Jizhe, deputy director of the National Development and Reform Commission, the scale of central budget investment in 2021 is 610 billion yuan, an increase of 10 billion yuan over the previous year, supporting the renovation of old urban residential communities, agriculture, rural areas and farmers, water conservancy, major infrastructure and other areas. At the same time, 3.65 trillion yuan of local government special bonds will be arranged, precisely for infrastructure and public service projects with certain returns in transportation, energy, agriculture, forestry and water conservancy, ecological and environmental protection, social undertakings, logistics, municipal and industrial park infrastructure and other fields.

Analysis points out that fiscal funds play an important leveraging role in major project construction. "Government investment should identify weak areas constraining economic and social development and target them precisely. For public welfare areas that are needed for development but have high cost risks, government investment should drive social investment and give play to its advantages of cost and risk sharing and high market efficiency," said Wu Youhong, director of the Investment System and Policy Research Office of the Investment Research Institute of the Chinese Academy of Macroeconomic Research.

In terms of finance, many places have recently held bank-enterprise matchmaking meetings, intensively recommending major projects to financial institutions and matching financing needs. At the Qinghai 2021 first batch of major project financing loan special train government-bank-enterprise matchmaking meeting, 35 declared projects were matched, with estimated total investment of 39.5 billion yuan, financing demand of 25.5 billion yuan, and applications for special train quotas of 23.6 billion yuan. A preliminary selection was made of projects that fit credit investment directions and have complete preliminary work, mainly involving cultural tourism, ecological restoration and environmental protection, new energy development, urban infrastructure and other key areas.

In addition, expanding private investment has also become an important measure to broaden financing channels for major projects. Recently, the Beijing Municipal Development and Reform Commission launched its first public project promotion in 2021, promoting 111 projects with total investment of 133.4 billion yuan and intending to introduce about 57.7 billion yuan of private capital. The number of projects, total investment and intended private capital introduction were all the highest in three years. In terms of participation methods, 75 projects, or 68%, plan to attract private capital through equity investment methods such as PPP and cooperative development and construction.

According to data from the national PPP project information monitoring service platform, as of the end of April this year, among signed projects on the platform, there were 1,720 private investment projects, accounting for 42% of all signed projects.

"At present, the PPP model has become an important focus of local investment and financing. Adopting the PPP model can effectively reduce the government's fiscal burden and lower leverage, while the participation of private capital is conducive to improving capital operation efficiency," said Fan Ruoying, a researcher at the Bank of China International Finance Research Institute.

Wu Youhong said that to improve the investment effectiveness of major projects, the next step should focus on building a market-led endogenous growth mechanism for investment, improving investment quality and efficiency, and stimulating endogenous growth vitality. Sustained efforts should be made in relaxing market access, policy support, the business environment, information services and other aspects to mobilize the enthusiasm of private investment.

Fan Ruoying said that to expand financing channels for major projects, it is also necessary to innovate investment and financing models to attract more social capital and supplement medium- and long-term funds for infrastructure projects. The business environment should be further optimized, hidden barriers in credit, innovation, bidding and other areas should be removed, enthusiasm of private capital and long-term foreign capital to participate in infrastructure projects should be increased, and the relevant rights and interests of private capital should be fully protected. At the same time, the role of policy-based finance should be brought into greater play, supporting major infrastructure projects through measures such as special construction funds and PSL support for specific infrastructure areas.