China is seeking social investment for environmental protection projects as a shortage of government funds impedes pollution control.

In a guideline published by the State Council, China's Cabinet, on November 26, the central government said it will further ease market access to key industries, promoting environmental protection by offering new forms of investment.

"It is a big turn in China's governing philosophy in the economic sector, which will help local governments to further open their minds in welcoming more social capital to fuel environmental protection projects," said Yu Xiaodong, deputy head of the resource and environment department of China International Engineering Consulting Corp and a consultant for the newly published guideline.

The market is playing an increasingly important role for local government pollution control projects, he said.

At last year's third plenary session of the 18th Central Committee of the Communist Party of China, a master reform plan was released that called for the market to play the decisive role in resource allocation.

Less than one week before the guideline went public, a criticism on the government's smog control put China's grim environment issue in the spotlight.

A resident of Zhengzhou in Henan Province wrote an open letter on microblog to Mayor Ma Yi, complaining his health is being threatened by the smoggy weather and that clean air was becoming a "luxurious delicacy." The letter also pointed out criticism over the government is rampant and there was demand for tougher measures to battle smog. The mayor replied to the microblogger, admitting he, too, was not satisfied by the result of smog control efforts despite added investment in tackling the problem.

Yu said one major obstacle to environmental protection is a lack of government capital and low efficiency in the use of government investment.

Statistics from the National Audit Office show local governments were liable for a total direct debt of 20.69 trillion yuan (US$3.4 trillion) at the end of last June, as well as another 9.5 trillion yuan of debt with limited liabilities.

Wu Xiaoqing, deputy head of the Ministry of Environmental Protection, said on November 25 that it is estimated that over 6 trillion yuan should be invested in treating air, water and soil pollution.

According to Wu, the investments by the central and local governments lag far behind the actual needs. Worse still, public funds are not efficiently used and the problem of embezzlement sometimes appears.

An environmental protection financing mechanism according to market rules is badly needed, he said.

To fill the investment gap, the Ministry of Finance is actively promoting the Public-Private-Partnership (PPP) for infrastructure and public service.

The PPP refers to the tie-up between government and private organizations based on franchise agreements. It aims at building urban infrastructure or providing public service.

The innovative financing model is paying off in parts of the country.

The government in Guizhou Province and the Asian Development Bank have agreed to cooperate in broadening financing channels to attract more capital for protection and green development of Chishui River, a major waterway in Guizhou.

Under a memorandum signed in July, the two parties will jointly develop a water fund and promote related policies.

The government of Harbin, capital of Heilongjiang Province, jointly established an environmental investment company with CECEP L&T Environmental Technology Co.

With a total investment of 3.5 billion yuan, the company will attract social investment by providing mortgage loans and franchise agreements.

Zhang Yufei, mayor of Harbin, said the government lacks money to meet the public's need for environmental protection, and it is vital to form a feasible business mode to back the PPP projects.

"We should make the PPP projects profitable in order to attract social investments," Yu Xiaodong said,

China should study the federal Superfund program in the United States that was set up in the 1980s to clean up uncontrolled waste sites. The program allows using technology, financing, and legal affairs to solve problems comprehensively, he said.

Wu said the government should lead in running the environmental protection fund.