China’s private investment growth plunges on poor implementation of private sector policies

Private investment growth in China plunged during the Jan-May period following poor implementation of policies supporting ease of doing business in the private sector amid legal barriers into the industry that prevented growth in investment.

Private investment growth plunged, rising only 3.9 percent y/y (Jan-May), down from 5.2 percent during Jan-Apr. In comparison, total FAI growth was 9.6 percent during Jan-May. Private investment accounted for 62 percent of all investment in the first five months.

Bureaucratic red tape and inconsistent approval standards coupled with high operational costs due to expensive land, rents, taxes, wages and cost of capital and finally, SMEs in sectors plagued by overcapacity are unprepared for industrial upgrading, posing threats to increase in private sector investment, DBS reported, citing the National Development and Reform Commission (NDRC).

The government is expected to adopt specific measures to counter the slowdown. Following "structural supply-side reforms" proposed by the President of the People’s Republic of China, Xi Jinping, China would lower costs for private enterprises and press ahead with cutting overcapacity.

Moreover, it would increasingly promote innovation and entrepreneurship, and encourage enterprises to seize opportunities arising from mixed-ownership reforms and the public-private partnership model (PPP), reports said.