Reform of the Investment System

The term “investment” in the investment system refers to the investment in fixed assets. By the time the People’s Republic of China was established, the country inherited pathetically scanty fixed assets for production purpose from the old China, and the newly formed fixed assets mainly derived from new construction, reconstruction, and expansion. At that time, such investments in fixed assets was called “basic construction.” During the period of planned economy, China’s economic growth was primarily driven by basic construction, and the source of funds was mainly fiscal funds, similar to the capital budget of the countries that implement a double-entry budget system. The state’s control over the scale of basic construction constituted the primary measure of regulating the economic cycle. In the process of the reform and opening up, a pattern of diversified funding sources and investment entities came to be gradually established in China’s investment sector. Having established the reform goal of building the socialist market economy, China has embraced the modern thinking of macroeconomic management and viewed investment as one of the three key locomotives driving economic growth. Regulation of the investment scale still remains the primary means of macroeconomic regulation. Given the important role of investment in the entire macro-economy, it is of particular significance to investigate the system of fixed assets investment when we discuss the impact exerted by the evolution of China’s economic institutions on the social and economic development since the start of the reform and opening-up.