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China Relaxes Infrastructure Project Finance Rules

Infra News - Published on Fri, 14 Jun 2019

Image Source: YUAN TALKS
China's latest stimulus move to bolster economic growth by relaxing restrictions on how the proceeds of local government bonds are used, paving the way for a new wave of infrastructure investment. Local governments can now use the funds raised as equity capital for major infrastructure projects having previously needed to fund the minimum equity ratio requirement, usually 20-30% of total investment in the project, themselves. The move by the government comes amid signs that domestic economic momentum is weakening due to headwinds from the trade war with the United States. The new rule, announced by the General Office of the Communist Party of China and the State Council, could boost the growth rate of Chinese infrastructure investment by 3-5 percentage points The government said the new rule will not increase the country's financial risk as special bonds must be used for projects that have been estimated to make a certain return on the investment.

Provincial and municipal governments in many parts of the country have been finding it increasingly difficult to raise sufficient funds to support ongoing projects following the central government’s decision to cut the value-added tax rate for most businesses and increase the individual income tax threshold as part of its effort to stimulate the economy.

The policy is more about guaranteeing that major projects have good quality support, rather than providing general support for all infrastructure investment

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Posted By : Rabi Wangkhem on Fri, 14 Jun 2019
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