In 2008, in an attempt to manage the global financial crisis, China implemented a 4 trillion yuan (US$572 billion) stimulus package, and questions are now being raised if a new round of aggressive action will be implemented this year after the first official data since the outbreak confirmed fears for economic growth prospects.
At least seven of 31 Chinese provinces have published long lists of investment projects in the last two months, with a combined investment of around 25 trillion yuan (US$3,6 trillion), including 3.5 trillion yuan (US$500 billion) for 2020.
“The most simple and effective way to offset the epidemic and economic downturn remains infrastructure construction. It can stabilise growth, employment, unleash growth potential and improve long-term competitiveness,” said Ren Zheping, the chief economist for China Evergrande, the country’s main property developer, who is a former researcher with the Development Research Centre of the State Council.
In particular, Ren noted, China’s focus for infrastructure investment should be on 5G telecommunications, artificial intelligence, industrial internet, smart cities, education and health care.
The pressure for engineering a strong rebound in China’s economic growth intensified at the weekend after the official manufacturing and services purchasing managers’ indices for February plunged to all-time lows.
China has rolled out a slew of “targeted” measures to help its hit-hard sectors, particularly small and medium-sized businesses, but the risks are growing that the existing monetary easing and fiscal spending will be too mild to achieve the minimum whole-year gross domestic product (GDP) growth rate of 5.6 per cent in 2020 that most predict is needed to ensure China’s meets its goal of doubling the size of its economy in 2020 from 2010.
Investment, particularly in infrastructure, was once the favourite tool of Beijing’s policymakers to achieve a quick economic recovery. The stimulus in 2008, coupled with a wave of cheap bank loans, engineered a knee-jerk economic growth rebound and made China the poster child of growth in the world.
At the same time, the stimulus left China with a mountain of debt, and the government has repeatedly said in previous years that it would avoid all-out stimulus measures.
Lu Ting, the chief China economist at Nomura, warned that large stimulus is not a cure for China’s problems as it could lead to unwanted results such as high inflation, low efficiency and rising financial risks.
“We must stay alert to the calls for a new round of large-scale infrastructure construction, property and auto market stimulus,” he said. “The major problem of the current Chinese economy is the slow resumption of production, not demand. Stimulus won’t be able to solve the supply-side problems.”
Sichuan province, the nation’s sixth largest in terms of economic size, has published a list of 700 “key investment projects” requiring a total investment of 4.4 trillion yuan (US$629 billion), with 600 billion yuan (US$85.8 billion) for 2020. The projects include a railway connecting the province and with the autonomous region Tibet, an airport in the city of Leshan as well as an ultra-high voltage power transmission line to Jiangxi province.
Fujian province, meanwhile, published a list of 1,567 infrastructure and industrial projects with total investment value of 3.8 trillion yuan (US$543 billion).
The projects are often “wish lists” for local authorities that still require fiscal and financial resources. but with Beijing stating that any economic policies would support growth, at last week’s meeting of top-level leaders, President Xi said that the country would embrace “more active” fiscal policy to seek effective investment and to accelerate construction.
Larry Hu, chief China economist of Macquarie Capital, said many local authority projects are subject to funding from the central government and state-owned banks.
“It’s more like a test of central government attitude. But there are still many issues for top leaders to consider, such as debt piles,” he said.
Hu believes the government could expand the special purpose bond quote to 3.5 to 4 trillion yuan (US$500 billion to US$572 billion) from last year’s 2.15 trillion yuan to fund infrastructure construction, but more evidence is needed to justify more aggressive action.
“It’s certain that the first quarter figure will be very bad, but the top leaders still want to have a quantitative assessment of economic damage for their next move,” he said. “A major stimulus could be seen in the second half if the first quarter results are bad enough.”
The central government are expected to announce China’s fiscal deficit ratio and local bond quota at its annual parliament gathering, but the 2020 National People’s Congress has been delayed due to the coronavirus outbreak.
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