MNI EXCLUSIVE: China To Ramp Up Infrastructure Starts In H2

China will accelerate infrastructure spending in the second half of the year in a bid to boost economic growth, targeting projects ready to start at short notice and able to generate viable revenue streams, government advisors told MNI.

Infrastructure activity should pick up once the rainy season ends, taking annual growth in the category to 10% and helping "to secure at least 3% GDP growth," said Zhang Yiqun, director of a fiscal studies institute affiliated with Jilin province's finance department. Up until the end of July, investment in infrastructure has run slightly below 2019's level, but many projects planned for 2020 did not get underway until May or June, despite large-scale issuance of infrastructure-backed special-purpose bonds throughout the first half, he said.

Nonetheless, while sufficient projects will be found to soak up available funds, given that many are already in advanced stages of planning, it is not clear how many of them will prove to be of long-term economic value, Zhang added.

"There are not many good projects offering clear returns to cover operating costs and pay back debts," he said.

Separately, other policy advisors have told MNI that sluggish demand may constrain this year's GDP growth to 2.5%.

Funding for investment from special-purpose bonds, local governments' general bond sales and the central government's budget should jump by at least CNY1.67 trillion to over CNY5.35 trillion in 2020, said Zhu Baoliang, chief economist at the Economic Forecasting Department of the State Information Center.

FUNDING SURGE

Local authorities had issued CNY2.56 trillion in special-purpose bonds by mid-August, up 51% from 2019, with CNY1.19 trillion more to be sold by the end of October, the Ministry of Finance said.

Most fresh spending will go into shovel-ready schemes and focus on urban community renewal, inter-city transportation and high-tech facilities like 5G base stations and charging piles for electric vehicles, according to Liu Xiangdong, deputy director of Economic Research at China Center for International Economic Exchanges.

More than 60% of this year's near CNY11 trillion in stimulus measures will be directed at infrastructure, according to Liu, which, combined with the base effect of relatively low spending in the sector in 2019, should push the second half's expansion into double digits.

But Zhang said the government should allow special-purpose bonds to fund a wider range of projects, including city subways and upgrades of schools and hospitals, adding that measures could be put in place to ensure private investment in such areas are not crowded out. Currently, subway construction is funded mainly by bank loans and funds raised by local government financing vehicles, driving up costs.