Screening Fixed Assets Projects

The State Council has called upon certain departments of the central and local governments to examine and verify projects under construction as well as those still in the planning stage. The National Development and Reform Commission (NDRC) is heading a task force to coordinate the efforts of relevant authorities, including the Ministry of Land and Natural Resources, the Ministry of Construction, the State Environmental Protection Administration and the China Banking Regulatory Commission and their local counterparts. Certain projects such as science, education, water conservancy in agriculture and forestry will be exempt from screening. The screening is being conducted on the basis of the affiliation of the sponsor of the project to be screened.

The criteria for screening include compliance with: state policies for the industry; land use, urban planning and construction requirements; environmental protection requirements; credit policy and fixed asset loans provisions; and requirements of circulars directed at such projects.

The Fixed Assets Circular calls for the following treatment of projects reviewed:

• projects that are either in the planning phase or under construction that are explicitly banned by the state and contravene relevant legislation are to be stopped;
• projects that fail to comply with relevant approval requirements such as urban planning or construction should be suspended and "rectified";
• projects that are in compliance may continue; and
• in principle, no new steel, electrolytic aluminium or concrete projects should be started in 2004.

Screening work is to be completed within one and a half months from the date of issue of the Fixed Investment Circular (although issued in April, the circular was not publicized until mid-June) and the results and proposed solutions are to be reported to the NDRC.

Most of the departments named in the Fixed Investment Circular have issued implementing circulars. On May 14 2004, the Ministry of Construction, for example, issued an Urgent Circular on the implementation of the Fixed Assets Circular. The Urgent Circular calls for the Ministry of Construction to strengthen cooperation with the planning authorities, and in particular, to focus on projects whose construction is either planned or under way. The Urgent Circular calls for local construction departments to review the construction documentation of the projects in question, and in particular, whether a project has been properly issued a "site selection certificate", "construction planning certificate", "construction engineering certificate" and other urban planning or construction approvals. The Urgent Circular requires provincial-level construction departments to compile a list of projects to be "screened" before the end of June, with the proposed solution and as well as suggested measures for controlling fixed asset investment.

On May 9 2004, the State Environmental Protection Agency (SEPA) issued an Urgent Circular to implement the Fixed Asset Circular. The SEPA Urgent Circular calls for a review of projects in the specified areas to determine whether environmental approvals have been obtained. In particular, SEPA and local environmental authorities are to check whether targeted projects have undertaken environmental impact evaluations, constructed environmental protection facilities and complied with environmental construction completion procedures, and are to report any involvement on the part of environmental protection authorities or their staff in the violation of environmental protection requirements.

It is likely that foreign investors and foreign companies doing business in China will be adversely affected by the consequences of the Fixed Asset Circular. However, it is also inevitable, given the cyclical nature of the Chinese economy and the paucity of other measures to slow fixed investment. It is noteworthy that the ministries involved in implementing the Fixed Asset Circular are merely implementing existing regulations rather than seeking new authority. This shows that compliance with urban planning, construction and environmental requirements is not very strong.