| A major highlight of the macroeconomic figures in May is the surge in private investment. During the first five months, China's private fixed-asset investment increased by 26.7 percent year on year, accounting for 60 percent of total fixed-asset investment. Private investment is playing a bigger role in sustaining economic growth.
In February, the State Council set a deadline for concerned departments to issue implementation measures for bolstering private investment. In May, the Ministry of Health, Ministry of Railways and State-owned Assets Supervision and Administration Commission consecutively released those regulations, which enable private investment to enter more sectors. In a bid to accurately reflect the development and distribution of private investment, the National Bureau of Statistics issued a regulation at the beginning of 2012 that promises to release statistics on the private fixed-asset investment each month starting in May. The above-mentioned moves indicate the acceleration of the transformation from government-driven investment to private investment.
In the short run, encouraging private investment can help resume the indigenous momentum of economic growth because it can reduce the influence of policy adjustment on the macroeconomy. In the long run, the attitude towards private capital helps define the roles and boundary of the government and the market. This has far-reaching significance to China's future development.
The global financial crisis has misled the world. In 2008, all governments, with abundant money in hand, conducted Keynes-style expansion. Developed countries tried to mitigate the wealth decline by providing stimulus policies to financial departments, citizens and enterprises and shifted the debt of private sectors to government departments.
However, the result shows that government-driven economic recovery will add to government debt, weakening the government's ability in coping with the crisis. Because of the large-scale stimulus policies, developed countries were mired in a larger fiscal deficit, with their debt soaring. By 2011, the global sovereign debt surpassed $40 trillion. Compared with European countries and the United States, China had a lower public debt-to-GDP ratio. But after the anti-crisis efforts in 2008, China's debt-to-GDP ratio has also increased substantially. Risks are still simmering in the aftermath of government-driven economic growth.
For a long time, the development of private investment has been restricted in many areas, including investment, financing and taxation, resulting in its slow development and low efficiency. Now, the 36-clause regulation for promoting private investment indicates the reform has entered a new phase. But a fixed power system has been formed because of monopoly in resources. Whether private capital can gain equal access to the market and compete with state-owned enterprises fairly remains to be seen.
Government-led economic stimulus can never be an effective buffer against crises. The key lies in cultivating indigenous momentum for economic growth. In order to encourage and promote private investment, we should not only loosen restrictions for private capital in the short run, but also have overall institutional arrangements for encouraging, promoting and protecting private investment. Besides loosening restrictions, setting up private financing institutions and lowering interest rates, the government should formulate a private investment promotion law, to offer legal assurance for the free investment of private capital.
Instead of relying on government nurturing, a good institution breaks up monopolies and makes more factors of production flow freely. The newly released stimulus measures not only loosen private capital, but also loosen government itself.
This is an edited excerpt of an article by Zhang Monan, an associate researcher with the State Information Center, published in the Economic Information Daily | 
