MNI EXCLUSIVE: China Infrastructure Spending Seen Up In 2019

--Infrastructure Investment To Outpace 2018's 3.8%, But Fall Far Below 2017's

19%

--Planned LGSB Issuance Insufficient For Scheduled Infrastructure Investment

By Wanxia Lin

     BEIJING (MNI) - Chinese infrastructure investment will pick up modestly

this year from the low levels seen in 2018, boosted by increased funding by

local government special bonds (LGSB), a senior government advisor told MNI

Wednesday, although another advisor said planned issuance will be insufficient

to support the needed expenditure.

     Growth in investment will outpace the 3.8% seen last year, as

infrastructure projects are ramped up to boost the economy, but be far slower

than the 19% in 2017, said Bai Chong-en, Dean of the School of Economics and

Management at Tsinghua University.

     Local authorities will this year be authorised to issue CNY2.15 trillion of

special bonds -- which are repaid by returns on projects they fund and do not

appear in headline central government accounts -- up from the CNY1.35 trillion

initially pencilled in for 2018, Premier Li Keqiang said on March 5. Actual

issuance last year eventually totalled CNY1.95 trillion and MNI understands the

government may allow additional quotas this year if demand is robust

     Bai, a former member of the People's Bank of China Monetary Policy

Committee, said government-led infrastructure investment growth at the lower end

of the recent range is better for the overall economy, as it will help prevent

the allocation of resources away from the private sector, and avoid a return to

the 'old path' of stimulus-led growth.

     --REAL DEMAND DRIVER

     Bai emphasized the need for infrastructure investment to target areas with

real demand, rather than for projects to be carried out simply to stimulate

growth.

     Different cities may have different needs, he noted. Some need better

public transportation, others sewage systems and investment decisions need to be

made at the local level, he said.

     But Gao Peiyong, vice president of the Chinese Academy of Social Sciences,

said planned LGSB issuance will be insufficient to finance all the

infrastructure projects in the pipeline. "The special bonds quota was raised by

only CNY800 billion from last year, insufficient by far," he said.

     China's regions have been left struggling to finance spending programmes as

the central government continues to crack down on their debt levels, cutting off

their access to alternative funding vehicles or the shadow banking system.

     National authorities are likely to exercise forbearance towards

unsustainable local government liabilities, Gao said, allowing them to be

reduced gradually.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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

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