Business / Economy

Drive to urbanize requires change in financing

By Zheng Yangpeng (China Daily) Updated: 2014-03-20 07:28

A new town takes shape in Huaxian, Henan province. The country's new urbanization plan outlines a diversified and sustained funding system for the drive. Li Gang / for China Daily

Urbanization : Not just about building homes

Solutions needed for urbanization

China's urbanization drive will speed up the reform of the fiscal and public project funding, as the current financial mechanism for local governments can't meet the huge funding need, according to a newly issued urbanization plan and officials.

The unprecedented National New-Type Urbanization Plan (2014-20) outlines a "diversified" and "sustained" funding system for urbanization. And, for the first time, the State Council has agreed to let local governments issue municipal bonds.

At a Wednesday news conference, Liu Kun, vice-minister of finance, said the government will boost the bond market by allowing local governments to issue bonds at their own discretion.

The government also will spur the private sector's involvement in city construction through public-private partnerships.

Analysts said that these initiatives could be a breakthrough for China's fiscal and infrastructure funding system. The Budget Law prohibits local governments from carrying fiscal deficits and borrowing funds directly. Debts of some cities and provinces have to be raised through the Ministry of Finance.

The PPP model has not really taken off in China as government funds still shoulder most public infrastructure projects.

But as the country plans a major expansion of its transport networks and urban infrastructure in anticipation of rural-to-urban migration, traditional financing apparently can't accommodate these needs.