Depth report

　　

The increase in infrastructure investment was in line with expectations after the first half of China's economic data.

From January to June, the cumulative growth rate of infrastructure investment (full caliber) was 9.3%. On a monthly basis, infrastructure investment (all measures) increased by 12 percent year-on-year in June, 4.1 percentage points higher than May's 7.9 percent.

At present, we have a clear policy approach for stabilizing growth, that is, expanding effective investment. On June 2, the executive meeting of The State Council decided to increase the credit line of policy banks by 800 billion yuan to support the growth of infrastructure investment. At the regular session of The State Council held on June 29, 300 billion yuan will be raised by issuing financial bonds, which will play a role in boosting investment. In theory, 1.5 trillion yuan of investment will be raised.

Analysts say infrastructure investment needs to grow at twice that rate to ensure the country's economic growth target of around 5.5 per cent this year. It is widely believed that the growth rate of infrastructure investment will continue to rise in the second half of the year as the epidemic prevention and control situation improves and projects enter the actual construction phase.

In this round of infrastructure investment, local governments also need to balance short-term and long-term benefits, broader social benefits and more direct economic benefits, leverage private investment to the maximum extent, and avoid the government debt problem left over from the previous round of infrastructure investment. Some economists lamented that when China started to build highways on a large scale in the 1990s, it was difficult for the outside world to understand. They later realized the significance of that round of infrastructure investment for attracting subsequent industries. "Now we need to find infrastructure projects like the highway projects to invest in".

Under the requirements of moderately advanced construction, China is ushering in another round of strong infrastructure investment cycle.

How does bond issuance speed translate into project speed?

The fast pace of special bond issuance in 2022 shows the urgency of infrastructure investment.

Special bonds, namely local government special bonds, some scholars in the field of finance told reporters that because they are not included in the fiscal deficit, they have gradually become the main source of capital increment for infrastructure investment in recent years. Since 2020, the annual issuance quota has been more than 3 trillion yuan.

This year, the central government will allocate 3.65 trillion yuan of new special bonds, basically the same as last year. But with the addition of 1.2 trillion yuan carried over from last year, the available funds for special bonds will reach 4.85 trillion yuan. More importantly, the issuance pace has been significantly advanced. The State Council in late May issued a package of 33 policies and measures to stabilize the economy, requiring the 2022 new special bonds to be basically issued by the end of June, and strive to be basically used by the end of August.

"This year's new special bonds have been issued in the first half of the year." Wen Laicheng, executive director of Zhongcai-Zhongzheng Pengyuan Local Finance Investment and Financing Research Institute, told China Newsweek that special bond issuance has been faster than last year, which has significantly boosted infrastructure investment.

The construction machinery industry is also seen as a barometer of infrastructure investment. "In 2009, the industry is in short supply everywhere, subject to capacity, construction companies often need to contact several suppliers to buy a tower crane, supply and demand ratio can even reach 1:5, and even construction machinery operators are difficult to recruit." Lu Ying, deputy secretary-general of the China Construction Machinery Industry Association, remembers the boom of 2009, when the industry's top players entered an expansion cycle, with Sany's workforce rising from 22,000 in 2009 to 52,000 in 2011.

"The sales volume of major construction machinery products in the first half of this year did decline considerably, with a decrease of 100,000 units in the first half of this year. The overall situation in January and February was not bad, while March and April were relatively low. April was the worst month, and May and June picked up, especially June, but it was difficult to complete the reversal in a month." Lv told China Newsweek that this is not in line with the perceived push for infrastructure investment.

Part of the reason, he explains, is that a lot of the actual work on the projects has not yet been fully done, requiring preparatory work rather than starting as soon as the money is in place. "I once surveyed a place where there was a so-called 'centralised' batch of projects, with a 50-50 split between nominal and actual construction," he says.

Wen Laicheng introduced that there had been audit results, special debt funds idle situation is more prominent, idle time or more than a year. "The main reason is that the quality of some projects in storage is not high. For example, some projects have not been approved in advance, which makes it difficult to start work immediately after the funds are in place, causing delays. This requires local governments to make adequate preparations when they reserve special debt projects. At present, many departments are involved in the examination and approval of infrastructure projects, for example, some local departments are involved in the examination and approval of as many as a dozen."