CHINA'S new national industrial policy marks an important step towards laying the foundations for sustainable, long-term economic growth, says a Bank of East Asia report published yesterday. The bank applauded the mainland government's decision to issue a policy paper last June, redirecting some foreign investment into the nation's underdeveloped infrastructure and primary industries. 'The new industrial policy is a positive step towards better economic management. By alleviating bottlenecks in infrastructure services and basic industries, supply constraints can be eased, enhancing the efficiency of China's industrial sector,' the report said. Foreign investment in the mainland has boomed in recent years, but a disproportionate amount has gone into light industry and export processing operations. Also, a lack of co-ordination between industrial and foreign investment policies in the past has led to fragmented industries and excessive imports of certain equipment, according to the report. Now, under the strict guidance of the State Planning Commission, China intends to concentrate more resources on its 'pillar industries' - machinery, electronics, petrochemicals and motor vehicles. The government also will try to divert foreign investment away from the booming southern and eastern coastal regions for use to meet transportation and power generation needs in the interior. Thirdly, China aims to improve the country's industrial structure by co-ordinating regional policies and exploiting its industrial strengths. 'The new industrial policy re-centralises planning power. This is a rational approach to reforming China's industrial sector, given the increasing dependence upon indirect controls for economic management, and rising regional autonomy,' the report said. By the end of the century, the government hopes pillar industries will account for 23 per cent of the gross national product, up from 18 per cent in 1992. But financing that goal will not be easy. China needs to attract and mobilise and estimated US$500 billion for infrastructure investment alone over the next 10 years, the report said. That is more than double the total investment contracted in China between 1979 and 1993. Foreign investors also are often reluctant to pour capital into infrastructure projects because returns are generally low and slow in coming. While energy and transportations sectors have attracted some investment in recent years, agricultural and environmental projects have been largely ignored, according to the report. On the Chinese side, the government has few available sources of financing as an underdeveloped domestic capital market and weak financial intermediation have left limited scope for tapping the domestic savings pool. But the report noted that China has established the State Development Bank to provide financing for specialised infrastructure projects, and is carrying out further reforms in the banking system to make domestic financing more viable. Still, much remains to be done to resolve conflicts of interest between the government and foreign investors if China is to continue to be favoured over other nations in the increasingly competitive race for global capital. 'The fact that energy and transport enterprises continue to be constrained by central planning suggests that further reform to the state sector and the price system are necessary to attract foreign funds,' the report said.
