China may cut spending on strategic industries

Posted By: Religare
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China may cut spending on strategic industries
China, the world's second-largest economy, is set to trim its investment in its seven key industries on the back of corruption and overcapacity issues. The projects that could see reduced investment levels include high speed railway projects, and wind power and solar energy projects. Corruption in the speed train project and excess capacity in the wind power industries are seen to be the main reasons behind China's decision.

China's targeted spend in these key strategic industries were a mammoth $ 1.5 trillion in the next five years, in a bid to increase the share of these industries in its economy and reduce heavy reliance on cheap goods manufacturing. The government has still not decided the scale of the investment cut.

The seven key industries include high value equipment manufacturing, wind power and other alternative energy, biotechnology, new generation information technology, alternative fuel cars and energy-efficiency and environmentally friendly technologies.

Some economists feel that a very high level of fixed asset investments cannot be sustained for a long time, even though they have helped China in the past to create more jobs and increase its economic expansion. China is currently battling high inflation and a huge local government debt estimated to be 10.7 trillion Yuan.

Former railway minister of China, Liu Zhijun was removed from office in March2011 on corruption issues surrounding the high speed rail project. The new ministry has scaled down the investment in the rail projects in 2011 to 600 billion Yuan ($92 billion) from 700 billion Yuan planned by Liu Zhijun. China, which has the world's longest stretch of high speed rail network, is expected to build 45,000 kilometers of rail way lines by 2015.The rail ministry will invest 2.8 trillion Yuan up to 2015, despite being heavily in debt. China's rail infrastructure development is key to its growth and the government is expected to continue spending on it, but with due diligence.

China's plans to build seven 10 million kilowatts generation capacity wind power plants, in the coming years may be scaled down over concerns on overcapacity in the wind power industry. The wind power projects would require huge funds to be spent on power grids as wind and solar energy plants are situated in Western China, while manufacturing centers are in the country's coastal regions.

Currently, the GDP share of these seven key strategic industries is 2 percent; the government was looking to increase their share to 8 percent of GDP in 2015 and 15 percent by 2020. With the scaled down investment, the above targets may not be achieved.

Read more about: economy, railway, power, scam
Story first published: Friday, July 8, 2011, 9:30 [IST]
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