The Politburo of China’s Communist Party and the country’s cabinet, the State Council, both pledged at recent meetings to increase infrastructure spending to invigorate the economy crimped by a slowdown of domestic demands and escalating trade tensions with the United States.
Since “stalled” infrastructure investment so far this year is why China’s overall investment has been plunging, boosting infrastructure investment will be the key to stabilise the overall economy, said China International Capital Corporation in the latest research note.
China’s real gross domestic product grew 6.7 per cent in the second quarter, down 0.1 percentage point from the previous quarter, primarily drag by dwindling infrastructure investment which rose only 7.3 per cent year-on-year in the first half, compared to a 21.1 per cent growth one year earlier, damped by the government’s deleveraging campaign.
China will support infrastructure construction in three off-budget ways, namely accelerating bond issuance by Local Government Financing Vehicles (LGFVs) to the level in the first quarter, increasing issuance of special bonds for infrastructure projects to 1.35 trillion yuan and softening stance on shadow banking to make shadow banking assets decline at a slower pace, according to the latest research note from Goldman Sachs.
Policymakers said China will accelerate issuance of the special bonds for infrastructure projects. The country set a quota of 1.35 trillion yuan for the special bonds, but local governments issued only 367.3 billion yuan bonds in the first half amid the country’s stepped-up deleveraging efforts.
Meanwhile,The support for restarting old projects could also been seen in the news rules on the asset management products released by the People’s Bank of China recently, which showed that new assets management products are now allowed to invest in old projects that have been suspended or put off in the deleveraging campaign and are encouraged to invest in “relaunching old key projects in the key sectors.
“We expect to see pickup in start of new projects and restart of old projects,” according to the CICC, “as well as faster implementation of Public-Private Partnership (PPP) projects that have been approved by regulators but yet to start.”
Founder Securities agrees that the projects that had been suspended in the governments’ deleveraging campaign are likely to be restarted, such as high-speed railway projects and subway projects, according to a research note from.
Goldman Sachs also believes railway and subway projects are a key part in the upcoming infrastructure spree, about 600 billion yuan expected to be provided for railway and subway projects by issuing special infrastructure bonds respectively.
According to the information released by China Railway Corporation, China invested 312.7 billion yuan in railway construction so far this year, compared to the target of 732 billion yuan for the whole year, leaving a big room for more investment.
China’s Thirteenth-Five-Year Plan shows that the country aims to build 150,000 kilometres railways, 30,000 kilometres high-speed railways and 60 million kilometres subways by the end of 2020. As of the end of 2017, China has 23,000 kilometres, 5000 kilometres and 9.67 kilometres respectively. This round of infrastructure spree could help for the country achieve its railway ambition.
According to Guojin Securities’ forecast, investment in city rail projects is expected to reach 353 billion yuan in the second half of this year, representing a surge of 123 per cent from the first half.
Railway in the underdeveloped regions could be one of the focus. Chinese Premier Li Keqiang visited the Tibet Autonomous Region from recently, dropping by railway projects to call for quicker construction, according to the state-run Xinhua News Agency.
“Infrastructure development in the central and western regions is relatively weak, and promoting effective investments to improve weak links will not only narrow the gap in regional development but also helpful for the country to cope with economic downturn,” Li said.
In addition, the CICC expects to see significant pickup of investment in pubic services and public utilities. In particular, electricity power industry has a big room for more investment, as the growth of investment in the field has dropped to -20 per cent, making it likely to see a bottleneck to meet increasing electricity demand.
Haitong Securities believes that investment boost will not only cover tradition infrastructure projects such as transportation, water conservancy, environmental protection etc, but also cover new economy such as information infrastructure.