Structural investment addresses structural overcapacity
- By Shi Zhengfu
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E-mail China.org.cn, February 12, 2016
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The reason for "relative overcapacity" lies in insufficient investment in basic assets with strategic importance. Its large scale, long cycle of investment, high uncertainty, and blurry definition on its exclusive profit may explain the lack of desirable investors. Neither companies nor public finance are proper investors to pick up the slack.
Modeling on experience in private equity funds, China can build a quasi-market strategic investment fund system to carry out macro-strategic projects.
The funding system, encompassing several specialized sub-funds categorized by regions and sectors, could adopt the Public-Private Partnership (PPP) model, set up a market-oriented and professional fund operating team and a decision-making, consulting and auditing system for implementing the project in a step-by-step manner.
Regarding these super projects, it's not easy to reap profits in the short and medium term due to their long investment cycle, but they may promise stable and continuous returns in the long term.
Assets from macro-strategic investment projects are the cornerstone of long-term national development. They boast stable and constant returns and coincide with the growth of economic volume and per capita income.
With regard to their spillover effects, these macro-strategic projects could reap social benefits at the outset as most of the investment is with super projects that can drive demand for excess capacity. At the same time, investment in these projects could also avoid capital losses from fixed assets retirement, reduce the financial burden induced by massive social relief for the layoffs, and contribute to national finance and social stability. Moreover, investment in technological research and labor training will drive consumption and tertiary industry through income growth.
Shi Zhengfu is director of the Center for New Political Economy, Fudan University and chairman of Comway Capital Group.
The article was translated by GuoYiming. Its original unabridged version was published in Chinese.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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