New urban financing system urged
By Da Shan (China Daily)
Updated: 2004-04-15 09:02

China should establish a new investment and financing system to ensure a sufficient supply of funds to support the nation's urbanization process.

Li Shantong, a senior researcher at the State Council's Development Research Centre, said government finance is a major source of urban infrastructure construction funds in any country.

Government investment usually accounts for more than 50 per cent of total urban infrastructure investment in developed countries.

For example, Japanese Government investment in urban infrastructure accounted for 58 per cent of the total in 1980.

But this only accounts for around 35 per cent of the total in China today.

Li told yesterday's seminar on municipal bond market that the nation cannot solely rely on State cash to support its rapid urbanization.

"A new investment and financing system should be established."

The new system should include improvement and regularization of the land leasing system, allowing local governments to issue bonds and encouraging both foreign and private firms to take part in infrastructure construction.

Jiang Chao, president of Golden State Holding Group Corporation, said China's urbanization has entered a rapid phase of development.

The urbanization rate is expected to grow from 37 per cent in 2001 to about 60 per cent in 2020.

This means the urbanization rate should grow annually by 1.2 percentage points.

Accelerating the urbanization rate and encouraging rural residents to work in cities are both important central government measures to lift rural people's incomes.

The slow growth of rural residents' incomes has long been a headache for the central government, as it has a great impact on the implementation of the demand-stimulation policy.

China's rural residents, accounting for more than two-thirds of the country's total population, contribute just one-third to total consumption.

More urban families will begin to buy private cars as the nation's economy further develops, stimulating demand for urban transportation facilities and other infrastructure, he said.

This demand should not have to be met from central government coffers, he said.

"The government should use a variety of methods to build this infrastructure," he said.

The government should shoulder the burden of investment in non-profitable projects, such as road construction and river water treatment.

But the State should allow foreign or private firms to conduct business in profitable projects such as tap water and sewage treatment plants.

For projects that feature long-term and low-return rate such as airport and urban rail transport, the government should be responsible for certain duties.

This will mean that government finances continue to bear a heavy burden, he said, noting this could be eased through the issue of municipal bonds.

"The time is basically ripe for local governments to issue such bonds," he said.

In China, new deposits by companies and individuals grew by an annual average of 1,000 billion yuan (US$120.5 billion) over the past several years.

This means the companies and individuals have enough money to buy these bonds, he said.

Local governments, however, are still forbidden from issuing such bonds.

But it has become an open secret that local governments have acquired debts through various means.

The central government should revise its laws and regulations covering this field, and increase supervision of these debts, experts say.

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