EVs, 5G set to spearhead China’s ‘moderately excessive’ infrastructure push amid economic slowdown concerns

China is likely to place an emphasis on new infrastructure – such as new energy, charging stations for electric cars, data centers, 5G
Economists are worried about China’s economic slowdown with fourth quarter growth likely to fall below 4 per cent from 4.9 per cent in the third quarter

China's economic recovery

Frank Tangin Beijing

Published: 11:00pm, 26 Nov 2021

Why you can trust SCMP

Beijing’s call for “moderately excessive development of infrastructure” may reflect its growing concerns over an economic slowdown, but it is unlikely to repeat the previous mistakes of debt-fuelled blind expansion of traditional projects, analysts said.

Instead, the Chinese government is likely to place an emphasis on new infrastructure – new energy, charging stations for electric cars, data centers and 5G – that could deliver greener and more sustainable growth.

Debate over stimulus tools was triggered as the People’s Bank of China marginally loosened mortgage and development loans for qualified developers from October, while the central banks also deleted wording like “controlling the valve on money supply” in its monetary policy report last week.

He’s not talking about policies for the next three or five months, but a rather long-term guideline

Larry Hu

The discussions heated up as Vice-Premier Liu He said on Tuesday that China should have moderately excessive infrastructure construction, although he did not elaborate.

It comes as economists are becoming increasingly worried about China’s economic slowdown with fourth quarter growth likely to fall below 4 per cent from 4.9 per cent in the third quarter, with October investment, industrial production and consumption still hovering at a low level.

Chinese policymakers will convene the annual central economic work conference next month to discuss the slowdown, as well as the impact of the coronavirus and external changes, setting the tone for the economic tasks for next year.

01:37

China expands 5G network to over 1.15 million base stations, more than rest of the world combined

“He’s not talking about policies for the next three or five months, but a rather long-term guideline,” said Larry Hu, chief China economist of Macquarie Capital, referring to Liu’s explanation of the decisions made during the recently concluded sixth plenum.

Liu made a similar comment when addressing the China International Digital Economy Expo in early September, when the debt crisis surrounding property developer Evergrande sent shock waves through the investor community.

Macquarie’s Hu believes that China now places a higher priority on new infrastructure projects, a highlight of government work reports since last year.

Guangdong to build 20 hi-tech industrial estates focusing on 5G by 2022

Such projects often include new energy, 5G, ultra-high voltage power transmission, artificial intelligence, industrial internet, data centers and educational and medical care facilities.

Added government focus on new infrastructure projects will certainly help improve fixed-asset investment after growth slowed to 6.3 per cent in the first 10 months of the year from 34.2 per cent in the first quarter.

New infrastructure investment reached only 1 trillion yuan (US$157 billion) last year, 1.9 per cent of overall national fixed-asset investment, or 7 per cent of property investment, while the combined size over the next five years is estimated at 10 trillion yuan, according to research by the Industrial and Commercial Bank of China in June.

There is room for green infrastructure, such as new energy projects, and manufacturing investment to catch up, so that they can partly offset the decline of the property market

Robin Xing

“The construction of new infrastructure is not set to serve the purpose of economic stabilisation, but mainly optimisation of economic structure,” Hu said.

Ren Zeping, chief economist at Soochow Securities, warned that the Chinese economy has seen an accelerated slowdown since August and there were already some signs of stagflation in October’s economic data.

“It’s time to do something,” he said on Wednesday. “The simplest and most effective way is still new infrastructure construction.”

New projects, particularly concerning new energy and the digital economy, will become a main tool for cross-cyclical adjustment and credit support, replacing the previous obsession with property development, traditional infrastructure and heavy industry, Ren added.

A nursing worker pushes a patient in front of screens showing realtime electrocardiographs of different patients via 5G technologies at the Guangdong Second Provincial General Hospital in Guangzhou in September. Photo: Simon Song

Morgan Stanley, which takes a more optimistic tone than others, believes that China’s deleveraging policy is close to a turning point, while macroeconomic policies will turn more proactive and accommodative ahead of the 20th Party Congress in October next year.

“We believe that China has the spare capacity to accelerate infrastructure construction,” Robin Xing, Morgan Stanley’s chief China economist, said on Tuesday.

“There is room for green infrastructure, such as new energy projects, and manufacturing investment to catch up, so that they can partly offset the decline of the property market.”

Infrastructure construction, which is often funded by government spending and state-owned banks, was a widely used tool to prop up growth. While generating low returns, it built up trillions of yuan of debt that heavily weighed on some financially struggling regions.

For a decade, China borrowed to build infrastructure. Is economy now at risk?

Infrastructure investment grew by 1 per cent from a year earlier in January-October period, compared to 4.2 per cent in the same period of the pre-pandemic year of 2019, and 19.6 per cent in 2017.

Project approvals, a leading indicator for fixed-asset investment, has shown no sign of a significant increase.

The National Development and Reform Commission, the country’s top economic planner, approved 70 projects in the first 10 months of the year, involving a total planned investment of 495.4 billion yuan (US$77.5 billion).

Only four, with a combined planned investment of 15 billion yuan, were approved in October, government data showed, up from 10.6 billion yuan for four projects a year earlier.

Post