Beijing may cut spending on strategic industries

Jul 8 2011

Beijing may cut spending on strategic industries

BEIJING: 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 that suffer from old-fashioned problems such as corruption and overcapacity, sources said.

Beijing originally planned to invest up to US$1.5 trillion (S$1.8 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 centred 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 the Communist Party leadership and knowledge of the plan.

'The (size of the) retrenchment is still under deliberation,' said a source.

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 Professor 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 (S$2 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.

Lower spending in high-speed rail is directly related to the departure of the railway minister, sacked this year under a cloud of corruption, said the sources.

Former minister Liu Zhijun spearheaded China's high-speed rail expansion until he was removed in March for 'disciplinary violations', a charge commonly used to denote corruption.

In April, Premier Wen Jiabao warned against corruption tied to big projects, telling 'cadres, their families and staff as well as heads of state-owned enterprises, state financial institutions and academic institutions not to intervene in or manipulate bids in any form'.

The ministry has denied any plans to cancel or downgrade rail lines.

But the new minister, Mr Sheng Guangzu, put investment in railway infrastructure this year at 600 billion yuan, compared with his predecessor's pledge of 700 billion yuan.


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