China’s slowing railway investment contributing to signs that economic growth is losing steam, analysts say

Growth in the world’s second-largest economy said to be on the decline as China clamps down on excess debt that increased as a result of coronavirus stimulus measures

But Beijing’s fine-tuning of its policy direction ‘is a turn, but not a U-turn’

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China’s railway investment in the first five months of the year dipped to 203.6 billion yuan (US$31.5 billion) – 8 per cent less than the same period a year earlier. Photo: Xinhua

Published: 5:30pm, 22 Jun 2021Updated: 10:59pm, 22 Jun 2021

Investment in China’s unprofitable rail sector has slowed as Beijing clamps down on excess debt, contributing to signs that growth of the world’s second-largest economy has begun to lose steam, according to analysts.

But despite Beijing’s debt concerns, it is likely to expand fiscal stimulus in the second half of the year to ensure that growth does not slow too much, they said.

China’s railway investment between January and May dipped to 203.6 billion yuan (US$31.5 billion) – 8 per cent below the same period a year earlier, according to data released last week by the National Railway Administration. For the whole of 2020, China spent 781.9 billion yuan on railway investments, down from 803.9 billion yuan in 2019 and 802.8 billion yuan in 2018.

The fall in railway spending, combined with a slowdown in overall fixed-asset investment and weaker growth in consumer spending are all signalling that China’s economic recovery has begun to slow, investment bank Natixis said in a note last week.

Fixed-asset investment grew 15.4 per cent in the first five months of this year compared with the same period in 2020, slowing from a gain of 19.9 per cent in the January-to-April period. While property investment remained resilient, posting an 18.3 per cent year-on-year gain in the January-to-May period, infrastructure investment decelerated further, with its two-year compound annual growth rate falling to 3.4 per cent in May from 3.8 per cent in April, according to Macquarie Group.

Larry Hu, chief China economist at Macquarie, believes the slowdown in overall credit growth is a key reason for the deceleration in fixed-asset investments, but he said it is unlikely to slow much further, let alone contract.

“The [policy] direction is a turn, but not a U-turn,” said Hu, meaning that Beijing is fine-tuning its policies to ensure sufficient growth without restoring the massive economic stimulus seen in early 2020 in response to the coronavirus pandemic.