August 26, 2019 / 3:16 AM / 3 months ago

China to lower capital requirement ratio for infrastructure projects: state planner

BEIJING (Reuters) - China plans to ease capital requirement for infrastructure projects in the second half this year, in a bid to boost investment and fend off rising headwinds in the slowing economy, the state planner said.

FILE PHOTO - An excavator works at a construction site in Chenggong District of Kunming, Yunnan province, April 14, 2016. REUTERS/Wong Campion

The economy stumbled more sharply than expected in July, with infrastructure investment slowing further despite a flurry of growth measures over the past year as the intensifying U.S. trade war took a heavier toll on businesses and consumers.

In a work report submitted to a regular meeting of Parliament’s standing committee on Saturday, the National Reform and Development Commission (NDRC) said it will “reasonably expand effective investment” by lowering the requirement of the minimum capital ratio for some infrastructure projects.

The NDRC did not give details.

Typically, infrastructure projects are financed by both equity and debt, but they need to meet a minimum equity ratio requirement prior to leveraging up through borrowing.

The Chinese government had announced in June that it would allow local governments to use proceeds from special bonds as capital for major investment projects, a move seen by analysts to make it easier for projects to meet the minimum capital ratio requirement and allows firms to leverage more loans from banks.

But S&P Global had noted Chinese authorities have “competing objectives” that are “often at odds with each other”, as Beijing is pressing local governments to stop hiding debt but also to borrow more to fund project to hit GDP growth targets.

“Local governments would be stretched to borrow more while recognizing billions of dollars in fresh liabilities—investors might flee,” it said in a note last week.

The NDRC added that it will also accelerate the issuance of local government special bonds to guide more investment in “key areas and major projects”.

It reiterated that China will keep a prudent monetary policy that is “neither too loose nor too tight” and guide funding costs lower for small and micro firms.

Reporting by Yawen Chen and Ben Blanchard; Editing by Kim Coghill

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