Why has China decided to increase private investment?

CGTN Europe

CGTN Europe interviewed Rory Green, Chief China Economist for TS Lombard

Transcript

00:00Rory Green is Chief China Economist for TS Lombard, an independent investment research firm.

00:07It's a significant liberalisation of the sectors available for private enterprises to invest into,

00:14and a lot of them were national security sensitive, stuff like nuclear, energy, electricity transmission.

00:20And there's also a big step where a significant amount of government revenue for procurement,

00:26around 40% for some projects is going to be channeled to SMEs, which are really the backbone of the Chinese economy.

00:32So those two are very large steps. Outside of that, there's some levelling of the playing field,

00:38and it does fall short of adding monetary incentives for investment.

00:43But those two steps on opening investment and the SME side are very important.

00:49So we know private investment in China has been slowing this year. Do you think this could help turn that around?

00:54Yeah, I think it could certainly help. Obviously, the trade war was a big factor weighing on confidence.

01:03A generally sluggish Chinese economy as well has dampened investment appetites.

01:09And with both of those, I think, turning the corner, both on trade and a re-acceleration of the economy coming,

01:16if we add in these new regulations and incentives, we could have a quite nice impact on private sector investments.

01:25So you've picked up a few of the challenges that are being experienced by the Chinese economy, the property sector, another one.

01:30How important is the energy sector in potentially boosting things economically and improving the outlook?

01:36Yeah, it's critical for two main reasons, Robin. Firstly, just investment into energy infrastructure is very growth positive.

01:46There's a high degree of spillovers, the materials involved, the labour cost, the land purchases.

01:52So that's one. The other factor, and this is really interesting in the new sort of AI race we're all watching,

02:00is that energy cost is a big competitive advantage for China.

02:04So the more cheap energy you have for households to use, for industry to use, and for AI data centres to use,

02:12the better the Chinese economy can perform relative to the US and to other nations.

02:18So energy investment is really critical in boosting growth and long-term outperformance.

02:23And it's not just the energy sector China is saying it's going to open up,

02:27it's the service sector, including to US companies. What's the significance of that, do you think?

02:33Yeah, you're right to highlight the opening to the US and the foreign investors,

02:40particularly in areas such as health, which has been quite closely regulated in the PRC.

02:48This is an attempt to bring in the rest of the world, to tighten China's links to the global economy,

02:55even as China is exceptionally competitive on the export side.

03:01So it is an important step.

03:03Perhaps more important will be domestic private sector investors,

03:07who, when they see the economy starting to re-accelerate,

03:11that demand picking up are likely to be incentivised to enter into these markets.

03:16So what kind of indicators should we be looking out for in the coming months

03:20to gauge whether these new measures are working?

03:22Yeah, the first things to watch are more policy signals, more politics, Rogan.

03:29We'll get local government and provincial government economic plans in January and February for the 2026 year.

03:38And within those, we should see a carryover of the messaging from the state government,

03:42the state council and the central government to encourage private sector investments.

03:46And then from there, we're looking at the monthly data,

03:51pretty good data on investment by industry and by company type, private or public.

03:59And by the middle of Q2, we should have a good indication of whether these specific measures,

04:04in conjunction with an improving macro environment,

04:07have managed to turn around private sector capex.

04:09Thanks.

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