China may rein in plans to invest heavily in seven new strategic industries, including high speed rail and wind power, scaling back cutting-edge projects for industries suffering from old-fashioned problems such as corruption and overcapacity, sources said. Beijing originally planned to invest up to $1.5 trillion over the next five years in the seven sectors, hoping they would grow into a pillar of economic growth and help shift the world’s second-largest economy away from one centered on manufacturing cheap goods.
The pullback on spending stems partly from worries about corruption in the country’s high-speed rail project and overcapacity concerns in the wind power sector, said two sources with ties to China’s Communist Party leadership and knowledge of the plan.
“The government is now reconsidering the seven new strategic industries plan,” one source said, requesting anonymity because he was not authorised to speak to reporters. “The (size of the) retrenchment is still under deliberation,” the source added.
Beijing has long used infrastructure spending to generate jobs and economic activity, most recently tapping government coffers to stave off the effects of the global financial crisis.
While high rates of fixed asset investment have helped maintain strong growth, some economists, such as Nouriel Roubini, have argued that China’s current levels of investment are unsustainable.
These days, China is more concerned about taming inflation and managing a mountain of debt piled up by local and provincial governments that the country’s state auditor estimates at 10.7 trillion yuan ($1.65 trillion). The strategic industries cover high-end equipment manufacturing, alternative energy, biotechnology, new generation information technology, alternative fuel cars and energy-saving and environmentally friendly technologies.
Analysts welcomed the news, which could mean less borrowing by local governments and faster consolidation of sectors like wind power. “A lot of these projects are already in question because of their (debt) liability and safety standards,” said Kevin Lai, an economist with Daiwa in Hong Kong. “The question that needs to be asked is: Is (investment-driven expansion) the kind of growth that China really wants?”
China may cut spending on strategic industries
