The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Poor western provinces to be given big infrastructure boost
Despite high government debt, mainland authorities will invest hundreds of billions of yuan in infrastructure projects over the next few years as part of its 'go west' policy to develop poorer western provinces.
The northwestern province of Gansu, for example, plans to invest 139.9 billion yuan (HK$170 billion) by 2015, of which 131.1 billion yuan will be invested in highways, 7.2 billion yuan in airports and 1.6 billion yuan in tourism projects, according to a bond prospectus issued by the Gansu Provincial Highway Aviation Tourism Investment Group.
The group, a company owned by the Gansu transport bureau, will contribute 47.8 billion yuan of this amount, 92.1 billion yuan will come from bank loans and the remainder will be invested by the Ministry of Transport and the Gansu government. The company plans to issue 2 billion yuan of one-year bonds, with 40 per cent of the proceeds used to repay bank loans and 60 per cent for operational purposes.
Investing in and operating Gansu province's highways, developing its airports and building tourism projects has resulted in a shortage inworking capital of 800 million to one billion yuan, the bond prospectus said, and the company planned to use 800 million yuan of the bond proceeds to make up that shortfall.
Although the company's gearing ratio decreased from 67.7 per cent at the end of 2010 to 54.6 per cent on September 30, its financing costs rose from 1.26 billion yuan to 1.6 billion yuan. Its long-term bank borrowings rose 31 per cent to 53.55 billion yuan at September 30, the prospectus said, adding: 'The company's debt burden is heavy and its financing costs are large. In the next three to five years, it faces heavy financing pressure.' For the first nine months of this year, financing costs ate up 46 per cent of its revenue.
The debt disclosed by all 231 local government financing vehicles that sold bonds up to December 10 totalled 3.96 trillion yuan, more than the size of the European bailout fund, according to Bloomberg. The debt load of 47 of the 56 local financing companies that issued bond prospectuses from October 1 to December 10 had increased this year, despite repeated warnings by the banking regulator of the need to control debt risks and speed up repayments.
This year, 22 new major projects under the 'go west' policy were launched with a total investment of 207.9 billion yuan, according to the website of the National Development and Reform Commission (NDRC). They include highways in provinces such as Gansu, Yunnan and Guizhou, metro rail projects in Nanning, the capital of the Guangxi Zhuang autonomous region, and an airport in Lhasa, the capital of Tibet. From 2000 to 2011, 3.1 trillion yuan has been invested in 165 projects under the policy, the NDRC said.
Luo Ping, its director of transport planning, said: 'The 'go west' policy is a major focus of China's economic strategy, because the government wants to rebalance the economy and slow exports. Investments in the 'go west' policy should not slow down in the next few years.'
However, Gary Wong, an analyst at Guotai Junan Securities, said: 'Projects in western China may not be completed at the scale originally announced. The 'go west' policy may not reach its investment target in 2012. Major infrastructure companies like China Railway Group are not that optimistic about fixed asset investment in the coming year.'
In the central city of Chongqing, investment in infrastructure including electricity, gas, water and transport rose 20.5 per cent to 164.4 billion yuan in the first 11 months of this year, 2.7 percentage points slower than in the first 10 months, according to the city's website.
The amount invested in infrastructure in western provinces in trillions of yuan since 2000 under the Go West policy