China orders U$120 billion infrastructure push amid slowing economy as Beijing steps up stimulus
- A State Council meeting on Wednesday ordered state-owned policy banks to set up an 800 billion yuan (US$119.6 billion) line of credit for infrastructure projects
- Beijing’s calls for faster implementation of growth-boosting policies have intensified with data showing China’s economy continued to decline in May
Beijing ordered state-owned policy banks to set up an 800 billion yuan (US$119.6 billion) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by coronavirus lockdowns.
The announcement, made at a State Council meeting chaired by Premier Li Keqiang, could help finance a significant chunk of infrastructure costs this year.
Bloomberg Economics estimated China’s infrastructure spending came to 23 trillion yuan (US$3.4 trillion) in 2021. Large policy lenders include China Development Bank.
The infrastructure push will help Beijing support investment “amid weak credit demand in the private sector,” said Nomura Holdings economists led by Lu Ting.
Nomura estimates the government has a 6 trillion yuan funding gap, created in part by a sharp contraction in revenue from land sales, a key source of funding of infrastructure investment by local governments.
The economists maintained their estimate for infrastructure investment growth to rise to around 10 per cent this year, and said coronavirus-related uncertainty still pose risks to the economy.
The State Council did not say how the policy banks would fund the lending. The development banks’ main source of funds come from issuing bonds or loans from China’s central bank.
In 2014, the People’s Bank of China extended a reported 1 trillion yuan loan to China Development Bank to help lower financing costs for government-backed housing projects.
Nomura estimated the 800 billion yuan funding accounts for nearly half of the 1.65 trillion yuan in new policy bank lending in 2021. Given low market rates, it is likely the banks will sell bonds to raise the funds, it said.
China has aimed most financial support this year at corporations rather than households.
At Wednesday’s meeting, the State Council reiterated vows to back internet platforms seeking domestic and overseas public listings.
The top government body also said targeted support measures should be provided for people who have lost jobs or income, and will distribute subsidies to some migrant workers.
Virus cases have moderated in recent weeks, leading to an easing of the lockdown in Shanghai.
Stll, the government’s strict zero-Covid policy, which requires restrictions on activity wherever outbreaks occur, means that consumption is likely to remain muted.
Allan von Mehren, China economist at Danske Bank, said China’s growth outlook depends on how it is able to manage Covid outbreaks.
“The Shanghai lockdown has been an outlier so far, but as a minimum we should expect more outbreaks requiring some level of restrictions,” he said.