China mulls $1.5 trln boost for strategic industries

Friday, 3 December 2010 00:41 - - {{hitsCtrl.values.hits}}

(Reuters) - 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 percent of China’s gross domestic product on an annual basis -- but said that the eye-popping headline figure was an indication of the government’s determination to catalyse a structural shift in the economy.

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 Central Economic Work Conference, the key annual meeting at which top leaders chart out economic policies for next year, is likely to endorse the plan for the seven new strategic industries when it convenes later this month.

“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.

The source declined to be named because of the sensitivity of the information.

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 percent of GDP now. The government has said it wants them to generate 8 percent of GDP in 2015 and 15 percent by 2020.

By pushing these sectors, China would be making a big bet that technology can help bridge the gap between limited supplies of commodities and the rapidly growing demand that has propelled the country to become the world’s second-biggest economy.

The ruling Communist Party’s 2011-2015 five-year plan calls for “cultivating and developing” the sectors.

But to date, the government has given no figure for how much money it will spend as part of the five-year plan for reshaping the economy.

The proposed investment in the sectors would rival the government’s two-year 4 trillion yuan stimulus package which came to a close in November.

“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.

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