China accelerates approvals for infrastructure projects

Workers at the construction site of a high-speed railway in eastern Shandong province. Beijing is accelerating infrastructure spending and rolling out other support measures for businesses to cushion the economy as it braces itself for the impact of
Workers at the construction site of a high-speed railway in eastern Shandong province. Beijing is accelerating infrastructure spending and rolling out other support measures for businesses to cushion the economy as it braces itself for the impact of escalating United States trade tariffs.PHOTO: REUTERS

BEIJING • China almost quadrupled the value of fixed-asset investment projects approved last month as Beijing looks to accelerate infrastructure spending to boost the cooling economy.

China gave the green light to 17 fixed-asset investment projects last month, which were worth a combined 77.69 billion yuan (S$15.5 billion), said Mr Zhao Chenxi, an official at the National Development and Reform Commission (NDRC).

In June, the amount of spending approved was 20.8 billion yuan, Reuters calculated from official data.

Beijing is accelerating infrastructure spending and rolling out other support measures for businesses to cushion the economy as it braces itself for the impact of escalating United States trade tariffs.

Data this week showed China's investment growth has slowed to a record low, and consumers are turning cautious on spending.

The NDRC also said 1.73 trillion yuan worth of debt-to-equity swap agreements had been signed as of end-July, although only 352 billion yuan has been transacted.

Beijing has encouraged highly indebted firms to enter into such agreements as part of its sweeping campaign to reduce risks in the financial system and a mountain of debt.

  • $15.5b

    Combined value of 17 fixed-asset investment projects given the green light in China last month.

But some China watchers are now questioning whether the stream of new stimulus measures and easier credit has put Beijing's debt reduction efforts on the back burner again.

Under debt-to-equity swap schemes, investors get equity stakes in firms and, in exchange, the firms are able to lower their debt burden, though the specifics of each deal are different and often complex.

When asked if the deleveraging campaign has hurt the economy, as suggested by the weak July data, NDRC official Chen Hongwan said the twin goals of sustainable economic growth and debt reduction were not mutually exclusive.

He said: "We can't just simply say deleveraging is at odds with economic growth." He added that moves such as forcing "zombie" firms to close were good for the economy and healthier for companies in the long run.

But many deeply troubled firms are state owned, and have many employees, raising the risk of lay offs.

While announcements of big projects are starting to come thick and fast, analysts cautioned that they have long lead times and they may not begin to arrest the decline in China's economic growth until next year.

"The key headwinds were the same as before - slowing investment (especially infrastructure) and an ongoing unwind of shadow credit due to deleveraging measures," analysts from UBS China wrote in a recent note.

They were referring to a crackdown on riskier lending, which is shutting down an important source of funds for small, private firms.

Despite the eye-catching road and rail spending, economists at Nomura believe Beijing is so far proceeding more cautiously with stimulus than in past downturns.

The government is likely saving its policy ammunition for next month and the fourth quarter, after more US tariffs take effect, Nomura said in a note this week.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 17, 2018, with the headline 'China accelerates approvals for infrastructure projects'. Print Edition | Subscribe