About That Rise in Chinese FAI

Government is slamming the brakes on FAI investment to rein in rapid debt growth.

In the context of preventing financial risks, local governments will increase their efforts to clean up implicit debts. In recent days, the Xinjiang Development and Reform Commission has opened three meetings and deployed the government to prevent government debt risks. It requires the autonomous region, the prefecture (city), and the county (city) level NDRC to fully clean up government investment projects since 2017 on April 3.

  The Xinjiang Autonomous Region Development and Reform Commission held a meeting for three consecutive days from March 27 to 29, demanding that the strengthening of government investment project management be an important task for the current and future period of time. It should do its best and do its best without impracticality. The goal is not to mess up the project of eating grain, and resolutely stop the construction of a disorderly debt-crunching culture, and ensure that the government does not use debt to zero growth. For capital construction projects, the Autonomous Region Development and Reform Commission shall work closely with the financial and financial departments to put forward project review opinions. “In particular, the review of project funding sources shall be strengthened, and any local supporting funds that are not implemented shall not be reported to the People’s Government of the Autonomous Region”.

  Since 2017, the central government has tightened the management of local bonds frequently. Xinjiang's move has certain characteristics, but it is not an example. Since the end of last year, many provinces have started to make a deep impression on the implicit debt of local governments. A person from a financial institution that participated in the Xinjiang government and social capital cooperation (PPP) project told Caixin that the clean up of government investment projects in Xinjiang this time was related to the clearance of PPP projects.

...At the beginning of 2017, under the situation that fixed asset investment fell by 5.1% in the previous year, the fixed assets investment target in the Xinjiang government’s work report was set at more than 1.5 trillion yuan, which is an increase of 50% compared to 2016, and once triggered widespread discussion in the market. Since then, PPP projects in Xinjiang have grown rapidly. The number of net additions to Xinjiang in the first quarter of 2017 ranked first in the country. As of the end of June 2017, Xinjiang has surpassed Shandong. The number of PPP storage projects is second only to Guizhou, ranking second in the country, reaching 1,257.

  However, in 2017, the actual investment in fixed assets in Xinjiang was 1,179.56 billion yuan, an increase of 20%, and the expected target was not fulfilled. In 2018, Xinjiang reduced its investment target in fixed assets and set it to increase by about 15%.

  Financial institutions generally include Xinjiang as a region with high local debt risk. In the second half of last year, a person with a large-capital management team told the Caixin reporter that the city’s investment debt in Xinjiang and other regions has been disregarded.

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