TNAG-1623-FCO40-2237-Relations-between-Hong-Kong-and-China-1987 — Page 104

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7.

In respect of fixed capital investment by state

enterprises, the latest figures show a year-on-year

increase of 26.2% in money terms in the first quarter of

1987, to Rmb 17.09 billion (US$4.6 billion). This rate of

increase outpaced the growth in total industrial

production and was substantially higher than the corresponding growth of 15.3% recorded in 1986. The

problem of excessive investment is believed to be even

more serious with collective enterprises and some local

authorities. Despite repeated emphasis by the state on

the need to clamp down on new investment projects this

year, there were more than 2,400 new investment projects in the first quarter of 1987. Many of these were small

scale and not too productive projects undertaken by local

authorities. It appears that the campaign of "three

guarantees and three curtails" (guaranteering those

investments inside the plan, those which are productive,

and those in the key areas and curtailing investment in

projects outside the plan, as well as those which are

non-productive and in non-key areas) is having only

limited success.

8.

In the absence of market discipline to

rationalize the investment pattern, the Chinese

authorities seem to have resorted to more stringent

administrative means. In March, the State Council issued a set of temporary regulations on the control of bond

issues by enterprises with a view to restricting the

raising of funds for spending in areas which had not been accorded high official priority ratings. According to

these regulations, the People's Bank of China (PBOC) will

be responsible for setting an annual nationwide total for

bond issues. Enterprises which wish to float bonds must

first obtain approval from the PBOC and if the funds

raised by this means are used for investment project, the

project itself must be approved by the relevant

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