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  • Sep 24, 2014
  • Updated: 9:01am

Communist Party third plenum

The Chinese Communist Party's third plenum of the 18th Party Congress traditionally sets the economic tone for the Chinese government's next five-year term.

NewsChina

Most investment projects will no longer need government approval

Move to cut government interference in the market seen as good news for private companies

PUBLISHED : Saturday, 16 November, 2013, 4:20am
UPDATED : Saturday, 16 November, 2013, 7:30am
 

Poll

  • Yes: 32%
  • No: 68%
16 Nov 2013
  • Yes
  • No
Total number of votes recorded: 222

In a major move to reduce government intervention in the market, the Communist Party this week decided that investment projects would no longer require government approval unless they concern security or key national strategies.

Stock markets rallied in response to the news, contained in a party document setting out in more detail decisions reached at the third plenum of its Central Committee.

The Shanghai Composite Index rose 1.7 per cent to 2,135.83, erasing a weekly decline and showing optimism that the plenum's resolution could lead to more specific changes.

Brokerage shares led gainers as Xiao Gang, chairman of the securities regulator, said capital markets would "usher in" new opportunities. Defence industry shares also rallied on news of the establishment of a national security committee.

"The cancellation of government approval is definitely good news to most private companies," said Fan Wei , a researcher at Hongyuan Securities in Beijing. "It echoes the plenum communiqué's idea of letting market forces play a decisive role."

According to the party's decision, published yesterday, investment projects won't need government permissions unless they relate to national or ecological security, the strategic distribution of industrial development or strategic resource development or are of "key public interest". The document does not provide a specific timeline for those changes.

Yuan Gangming , a researcher with the Chinese Academy of Social Sciences, said: "The wording is unprecedentedly strong, and the message is very clear that the leadership would like to minimise administrative interference."

However, less government scrutiny could lead to hasty, and poor, investment decisions and exacerbate dependence on certain industrial sectors in the short term, Yuan said.

Top-heavy industries producing more steel, cement and ships than are needed have hampered economic growth this year and left banks with mounting bad debts. However, the investment portion of gross domestic product has climbed. In the first three quarters, capital spending contributed 55.8 per cent of GDP growth, compared with 50.5 per cent a year earlier.

Critics said the plenum had not met public expectations of changes to state-owned enterprises. "[The state] will further break up various kinds of administrative monopolisation," reads the document, without further elaboration.

Gary Liu, executive deputy director at the CEIBS Lujiazui Institute of International Finance in Shanghai, said the government's path was unclear. "We don't know how committed the government is," Liu said.

The document reiterates that the state sector will remain the mainstay of the economy, while encouraging private capital to invest in state-owned enterprises.

"The policy reflects the government will to focus more on preserving and increasing the value of state assets," Zhu Boshan, general manager of Tacter Consulting Co in Wuhan, said. "They might aim to set up certain conglomerates copying [Singapore's] Temasek model."

The resolution also says that state-owned enterprises will be required to submit 30 per cent of their profits to the central government treasury by 2020. The money would be spent on social welfare. Currently, SOEs pay five to 20 per cent of their profits to the national treasury.

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