THE STATE COUNCIL, China's Cabinet, issued a regulation on government investment on Sunday. China Daily reporter Li Yang comments:

The regulation, which will take effect on July 1, lays out clearly the purpose, principle and scope of government investment, and outlines the decisionmaking and implementation processes, the legal liabilities and how the performance of an investment will be assessed.

This is China's first regulation on government investment, and it will serve as the foundation for the making of future rules and laws in this field.

The scale of government investment is about 3 trillion yuan ($443 billion). Although it accounts for a small share of the overall investment in the country, as the investment in fixed assets totaled about 64 trillion yuan last year, it plays a special role in boosting industrial upgrading, economic structuring and providing for public needs.

It is noteworthy that the draft of the regulation was unveiled as early as 2010 to solicit opinions, and it took nine years for it to be finalized. This shows the scale of resistance and the magnitude of the problems as well as the prudence of policymakers.

A central message from the regulation is that the government investment should mainly go to nonoperational fields, which chiefly consist of public services and national security, and industries in which the market cannot effectively allocate resources.

The regulation means that governments of all levels will have to fulfill their responsibilities to the public without any hesitation.

Although it is a regulation on government spending, it has received a warm welcome from the market, as it demarcates the boundary and defines the responsibilities of government investment.

The decision-making, assessment and supervision of government investment will be more professional and effective as third-party agencies are required to be involved along with public scrutiny. And governments are prohibited from raising investment funds through illegal borrowing. These rules are all conducive to checking the fast growth of local government debt, and avoid the surreal scenario of governments having endless debts to repay, yet countless money to spend.

It is believed the regulation, if well implemented, will bring about fundament changes to government investment and help guarantee rule-of-law governance.