(Yicai Global) Dec. 28 -- China's government investment funds aren't delivering the results they should, Wu Xiaoling, deputy chairman of the financial and economic committee of the National People's Congress, China's legislature, said at a recent meeting.

Wherever possible, government investment should go toward public services, education, healthcare and traffic infrastructure development. It should be kept out of competitive businesses, she added.

Public finance departments plowed CNY1 trillion (USD153 billion) into 'industry guidance' funds, said Wu, a former vice governor at the People's Bank of China and ex-head of the State Administration of Foreign Exchange. He questioned why this money wasn't spent on education or healthcare, where funding is urgently needed.

Government funds are depressing private investors, some even compete with private funds for lucrative projects and force them out of the running, she continued, stressing that the government should let private money play its role in competitive industries.

Wu does believe state-owned capital should play a role in supporting economic growth. "Government funds may serve as limited partnerships for investment funds that conform to national development strategies and industry policies," she said. "Local governments can invest in these funds as a form of credit enhancement and thus help them attract more private investors."

Government investment should go through be funds of funds and should never invest in projects directly, she advised.