MNI EXCLUSIVE: China Infrastructure Drive Faces Constraints

By Wanxia Lin

     BEIJING (MNI) - China's drive to power infrastructure spending to buoy the

economy will run up against constraints including a lack of funds and the

backlog of delayed existing projects, government advisors told MNI.

     "There won't be a significant recovery in infrastructure investment," said

Zhang Yongjun, deputy chief economist at the China Centre for International

Economic Exchange, a high-level think tank. "The strength shown by property

investment so far this year, and the moderate pick up of manufacturing

investment may play a more important role in helping to achieve the annual

growth target of 6-6.5%."

     Zhang, who previously worked on macro-economic analysis and forecasts for

the State Information Centre, said the number of infrastructure projects already

under construction was very large, and that a significant portion of additional

funds might need to flow into completing these already-initiated investments.

Zhang was also unsure about the amount of borrowing likely to be leveraged from

Beijing's recent move to allow local governments to use the proceeds of

infrastructure-backed "special bonds" as project capital.

     Local governments' quota for special bond issuance this year is likely to

be raised from CNY2.15 trillion, partly to compensate for their reduced income

due to tax and fee cuts, Zhang said, adding that the authorities will also

probably take further measures to support bank lending, with a view to pushing

the rate of growth in the M2 measure of broad money beyond its current 8.2%.

     --TOO LATE

     Wang Ming, director of Institute of Comprehensive Transportation at China

Academy of Macroeconomic Research, affiliated with the National Development and

Reform Commission, the government's economic planning body, agreed that it is

unlikely growth in infrastructure investment will quicken as much as hoped, from

4.1% in the first half of the year.

     "It's already July now," said Wang, "even if we want to drive growth by

kicking off more transportation projects, it would be too late."

     The NDRC has increased approvals of rail transit projects, including urban

rail, inter-city rail and railways since 2018, as policy makers aim at more

focused infrastructure spending addressing clearly-identified needs.

     The marginal utility of just "building more roads" has diminished, Wang

said, explaining that officials now seek "good projects" which can aggregate

factors of production in certain areas, and help to form economic corridors,

even if the project itself may not be highly profitable.

     Rail connections between nearby cities to form metropolitan clusters are a

case in point. "Rail transit will be key to transportation infrastructure in the

next five to ten years," Wang added.

     Nonetheless urban rail investment totalled only about CNY500 billion in

2018, well below the CNY2 trillion in highways. The NDRC has approved relatively

few highway projects in recent years, due to financing shortages, Wang said. 

     Wang warns that transport investment cannot continue to rely so heavily on

debt. "Liabilities are at a very high, and dangerous level," he said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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