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China mobilizes social investment to heal environment

Updated: Dec 4,2014 4:25 PM     Xinhua

BEIJING — China is seeking social investment for environmental protection projects as a shortage of government funds impedes pollution control.

In a guideline published by the State Council on Nov 26, the central government announced it will further ease market access to key industries, promoting environmental protection by offering new forms of investment.

“It is a big turn in China’s governing philosophy in the economic sector, which will help local governments to further open their minds in welcoming more social capital to fuel environmental protection projects,” said Yu Xiaobo, deputy head of the resource and environment department of China International Engineering Consulting Corporation and a consultant for the newly published guideline.

The market is playing an increasingly important role for local government pollution control projects, he said.

At last November’s third plenary session of the 18th Central Committee of the Communist Party of China, a master reform plan was released that called for the market to play the decisive role in resource allocation.

Less than one week before the guideline went public, a criticism on the government’s smog control put China’s grim environment issue on the spotlight.

A resident of Zhengzhou city in central China’s Henan province wrote an open letter on microblog Weibo to mayor Ma Yi, complaining his health is being threatened by the smoggy weather and clean air was becoming a “luxurious delicacy”. The letter also pointed out criticism over the government is rampant and tougher measures to battle smog were needed.

The mayor replied to the microblogger, admitting he, too, was not satisfied with the result of smog control efforts despite added investment in tackling the problem.

Yu Xiaobo said one major obstacle to environmental protection is a lack of government capital and low efficiency in the use of government investment.

Statistics from the National Audit Office show local governments were liable for a total direct debt of 20.69 trillion yuan ($3.4 trillion) at the end of last June, as well as another 9.5 trillion yuan of debt with limited liabilities.

Wu Xiaoqing, deputy head of the Ministry of Environmental Protection, said on Nov 25, it is estimated that more than 6 trillion yuan should be invested in treating air, water and soil pollution.

According to Wu, the investments by the central and local governments lag far behind the actual needs. Worse still, public funds are not efficiently used and the problem of embezzlement sometimes pops up.

An environmental protection financing mechanism in accordance with the market rules is badly needed, he said.

To fill the investment gap, the Ministry of Finance is actively promoting the Public-Private-Partnership (PPP) for infrastructure and public service.

The PPP refers to the partnership between government and private organizations based on franchise agreements. It aims at constructing urban infrastructure or providing public service.

The innovative financing model is already paying off in parts of the country.

The government in southwest China’s Guizhou province and the Asian Development Bank (ADB) have agreed to cooperate in broadening financing channels to attract more capital for protection and green development of Chishui River, a major watershed in Guizhou.

According to a memorandum signed in July, the two will jointly develop a water fund and promote related policies.

The government of Harbin, capital of Northeast China’s Heilongjiang province, jointly established an environmental investment company with the CECEP L & T Environmental Technology Co Ltd.

With a total investment of 3.5 billion yuan, the company will attract social investment by providing mortgage loans and franchise agreements.

Zhang Yufei, mayor of Harbin, said, the government lacks money to meet the public’s need in terms of environmental protection, and it is important to form a feasible business mode to support the PPP projects.

“We should make the PPP projects profitable in order to attract social investments,” Yu Xiaodong said,

China can examine the Superfund program in the United States, he said. The Superfund, established in the 1980s, is the federal government’s program to clean up uncontrolled waste sites.

The program allows comprehensive management that helps solve problems with technology, financing, and legal affairs, he said.

Wu Xiaoqing says the government should take a leading role in operating the environmental protection fund.

In order to attract more social capital, the government should seek to innovate the credit service and develop equity and bond financing in key pollution control projects, he said.