Scrutiny for Domestic Investment Too

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In a potentially fair-minded piece of economic policy-making from the National Development and Reform Commission, big domestic projects – not just foreign take-overs – are to get some central government scrutiny, according to a report in the International Herald Tribune. The motivation is to curb fixed-asset spending, and to further try and cool the economy.

The policy is reported to impact projects over US$12.5 million, as well as those in oversupplied sectors such as “steel mills, cement factories, vehicle assembly plants, power stations and aluminum smelters that exceed 30 million yuan in value”.

A Deutsche Bank economist is quoted as saying:

    “Assuming half of these projects are cleaned up…this implies that 20 percent of the new projects under review could be suspended or postponed.”

As previously noted, getting local firms to pay dividends (see here), and controlling bank lending, would also reduce the amount available for fixed-asset investment, and could have a significant impact on the economy and the investment environment. If companies are unable to borrow cheaply and invest freely, and if so many sectors continue to be over-supplied and painfully competitive, perhaps more will consider the dividend option.

See news source:

    China orders review of big projects
    International Herald Tribune – France
    SHANGHAI The Chinese central government has ordered the provincial authorities and state-owned lenders to review China’s industrial projects, stepping up …

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