China mulls $1.5 trln for strategic industries

CIOL Bureau
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BEIJING, CHINA: China is considering investments of up to $1.5 trillion over five years in seven strategic industries, sources said, a plan aimed at accelerating the country's transition from the world's supplier of cheap goods to a leading purveyor of high-value technologies.


Analysts expressed scepticism at the sheer amount of money - it equates to about 5 per cent of China's gross domestic product on an annual basis.

The targeted sectors include alternative energy, biotechnology, new-generation information technology, high-end equipment manufacturing, advanced materials, alternative-fuel cars and energy-saving and environmentally friendly technologies.

The central government itself would most likely not deliver the bulk of the money, but would seek to spur spending by corporations, investment by local governments and lending by banks.


"The State Council is considering a plan to invest up to 2 trillion yuan ($300 billion) each year in the seven new strategic industries over the next five years," a source with ties to the leadership and direct knowledge of the proposal told Reuters.

Beijing has said before that it wants to promote the sectors, a policy that it hopes will make the country less dependent on low-end, dirty manufacturing. The value-added output of the seven strategic industries together account for about 2 per cent of GDP now. The government has said it wants them to generate 8 per cent of GDP in 2015 and 15 per cent by 2020.

"It's one of these figures that is so big that even if it is exaggerated the actual figure is probably still big," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.


Renewable energy boost

Chinese officials sometimes declare vast investment ambitions as a way of rallying support for spending initiatives, even if the numbers ultimately fail to live up to their original billing.

"Focusing on the seven new strategic industries will increase China's competitiveness and push the economy further up the value chain," said Zhao Changhui, chief economist of the Export-Import Bank of China.


The government is also expected to give preferential treatment to investors in terms of tax and land acquisition.

The National Development and Reform Commission, a powerful planning agency, has said that the wind-power industry is already suffering from over-capacity, raising doubts about the need for large-scale investment in alternative energy.

The plan needs the approval of the National People's Congress, or parliament, which will hold its annual session in March 2011.