China's investment boosting has experts worried

A worker watching over cranes as he talks on his interphone at a port in Qingdao, east China's Shandong province, on March 8, 2016.
A worker watching over cranes as he talks on his interphone at a port in Qingdao, east China's Shandong province, on March 8, 2016. PHOTO: AFP

The Chinese government has upped investments in several major projects in January in a bid to boost the slowing economy, a move that has experts worried about risks.

This is even as they think such a stimulus is needed if the government is to keep on track its target annual growth rate of 6.5 per cent.

The government had pumped 5.3 trillion yuan (S$1.1 trillion) into major projects by the end of January, 253.2 billion yuan more than the end of last year, the National Development and Reform Commission (NDRC) was quoted by the Global Times daily as saying on Monday.


Its fixed-asset investment increased 10.2 per cent to 3.8 trillion yuan in January and February compared to the same period last year, according to the National Bureau of Statistics on Saturday.

The NDRC, China's top economic planner, also said it would open up the market wider to private capital and loosen restrictions on foreign firms to improve the quality of products and services. This is so that Chinese would spend their money at home instead of overseas and boost domestic consumption, reported Xinhua news agency.

NDRC's Mr Zhao Chenxin said at a press briefing on Monday that China had a shortage of high-end commodities and an "unsound consumption environment".

China is trying to move away from a dependence on exports and investments for growth to a reliance on consumption. Last year, consumption contributed 66.4 per cent to gross domestic product (GDP), up 15.4 points from 2014.

But that growth is not enough to substantially increase GDP growth, China Merchants Bank senior analyst Liu Dongliang told the Global Times on Monday.

"The Chinese government must increase its investments to stimulate the economy," he said.

He added that while the 253.2 billion yuan investment in January appeared a little too intense, the desired economic effects are unlikely to happen without it.

The Chinese government's decision to boost investments comes at a time of slower economic growth from sluggish exports. China's exports slumped 2.8 per cent in 2015 and fell 25.4 per cent in February compared with a year ago. Economic growth slowed to a 25-year low of 6.9 per cent in 2015, down from 7.3 per cent in 2014.

However, some experts warn that increasing investments can bring about risks.

"Investments might lead to debt if the projects are not profitable. Especially in infrastructure, which requires a huge investment, the government should be wary of launching projects," Mr Zhong Dajun, director of the Beijing Dajun Institute for Economic Observation, told the daily. He said attention should be paid to the quality of those projects, such as the return rate.

The NDRC approved 21 fixed-asset projects in January and 15 such projects in February, including in irrigation, energy and public transport. Major investments begun in 2014 and last year were also infrastructure heavy, with experts saying this was a "weak area" in China.

A version of this article appeared in the print edition of The Straits Times on March 16, 2016, with the headline 'China's investment boosting has experts worried'. Print Edition | Subscribe