Decision of the State Council on Reforming the Investment System

Decision of the State Council on Reforming the Investment System

Guo Fa [2004] No.20

July 16, 2004

Since the reform and opening to the outside world, the state has made a series of reforms on the original investment system, which have broken the highly centralized mode of investment administration under the planned economic system tradition, and have formed a new pattern of multi-investors, multi-channels of capital resources, and diversification of ways of investment, as well as market-oriented project construction. But there are still many problems remained to be solved in the current investment system, in particular the decision-making power of enterprises has not been fully carried out; the basic resource allocating role of the market has not been given into full play; the scientific level and democratization level of government investment decisions need to be further improved; and the efficiency of macro-control and supervision over investment needs to be enhanced. Therefore, the State Council has decided to further deepen the reform of investment system.

Article 1 Guidelines and Targets for Deepening the Reform of the Investment System
(I) The guidelines for deepening the reform of investment system are: to bring into full play the fundamental role of the market in allocating resources under the macro-control of the state according to the requirement for improving the socialist market economy, to establish the status of enterprises as the major subject of investment, to regulate investment activities of the government, to protect the legal rights and interests of investors, so as to create a market environment conducive to the fair and orderly competition of investors, promote rational flow and effective allocation of elements of production, optimize the investment structure, and raise investment returns, as well as push forward the coordinated development of economy and overall progress of society.
(II) The targets for deepening the reform of investment system are: to reform the system of government oversight of corporate investment and allow autonomy of enterprises in making investment decisions in line with the principle that "the investors make their own investment decisions, reap the profits and bear the risks"; to define the investment functions of the government rationally to have them make investment decisions in a scientific and democratic way, and an accountability mechanism shall be established to hold decision makers responsible for their decisions; financing channels shall be further expanded to have enterprises fund their projects through diversified means; standardized investment intermediary service organizations shall be nurtured with the reinforcement of industry self-discipline so as to promote fair competition; perfecto improve the investment macro-control system, macro-control mode and macro-control means; to speed up the legislation progress in the investment field; investment supervision shall be reinforced to protect standardized investment and build the market order. A new type of investment system shall be eventually established by deepening reform and expanding the opening up, in which investments are guided by the market, the enterprises shall make their own investment decisions, the banks shall conduct examination and approval on loans independently, and diversified ways of financing, standardized intermediary services, and effective macro-control shall be available.

Article 2 Transform the Administrative Functions of the Government and Establish the Status of Enterprises as the Main Subject of Investment
(I) The system of examination and approval for projects shall be reformed to put into effect the decision-making power of the enterprises on investment. According to the existing administration measures, the enterprise investments are, based on the scale of investment, subject to the examination and approval of the governments at various levels and the relevant departments respectively without exception and without differentiation on subjects of investment, resources of capital, and nature of projects. From now on, the examination and approval system shall no longer apply to nongovernmental-funded corporate projects, a ratification system and a reporting system shall be adopted instead depending on different circumstances. The government will only conduct ratification on the major projects and restricted projects from the standpoint of maintaining public interests, other projects will, no matter the size of the scale, be subject to the reporting system. The enterprises shall make their own decisions on market prospects, economic benefits, capital resources and product technical plans of projects, bear the risk of losses, and go through such formalities as the environmental protection, land use, resource utilization, work safety, and city planning, etc. for permission and formalities for confirmation of tax deduction and exemption according to law. The government shall only conduct examination and approval for capital application reports of enterprises on projects invested and constructed by using the government subsidies, allocated loan proceeds, and discount interests. All the regions and departments shall improve the measures for the administration accordingly, regulate administrative acts, and no one shall retain the decision-making power of enterprises on investment for any reason.
(II) Standardize the ratification system of the government. The scope of ratification system shall be strictly restricted, and shall be adjusted in a timely manner according to the circumstances. The Catalogue of Investment Projects Approved by the Government (hereinafter referred to as the Catalogue) shall be brought forward by the competent investment department of the State Council together with the relevant department upon study, and shall be implemented after being reported to and approved by the State Council. No region or department shall add or reduce the scope as prescribed by the Catalogue without the approval of the State Council.
An enterprise needs only to submit the project application report to the government for a project of its investment and construction that is subject to ratification, procedures such as the approval of project proposals, feasibility study report and report for starting construction are no longer necessary.
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