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China eyes infrastructure boost to cushion economic growth

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BEIJING: China plans to put more money into infrastructure projects and ease borrowing curbs on local governments to help soften the blow to the economy from the Sino-US trade war, policy sources said.


China’s trade war with the United States has clouded the outlook for the world’s second-largest economy and roiled financial markets. A sharper slowdown in the Chinese economy could fuel job losses, a concern that Beijing has raised.


But Chinese leaders have ruled out another round of strong fiscal stimulus, wary of inflaming debt risks. A 4 trillion yuan ($590 billion) spending package in 2008-09 shielded China’s economy from the global crisis but saddled local governments and state firms with piles of debt.


The amount of infrastructure spending this time will depend on how the trade war evolves, said four sources who are familiar with government policy. The sources are involved in internal policy discussions but are not part of the final decision-making process.


“In the short term, the most effective way is to boost infrastructure investment,” said one policy insider who advises the government, speaking on condition of anonymity. “We will let fiscal policy play a bigger role in supporting the economy as monetary policy is less effective.”


Economic growth slowed slightly to 6.7 per cent in the second quarter — still above the official 2018 growth target of around 6.5 per cent.


However, the trade row with Washington, a slowing domestic property market and reduced outbound shipments have sharply increased the risks to China’s economic outlook.


Earlier this month, the United States imposed tariffs on $34 billion of Chinese imports. China promptly levied taxes on the same value of US products, leading US President Donald Trump to threaten to tariffs on all $500 billion of goods imported from China.


China’s infrastructure investment growth tumbled to 7.3 per cent in the first half from 21.1 per cent a year earlier — dragging fixed-asset investment growth to a record low — due to stricter checks on investment projects to curb debt risks.


Fiscal policy will become “more proactive”, China’s cabinet said after a meeting on Monday, pledging to deliver more tax cuts and quicken the issuance of local governments’ special bonds to support infrastructure investment.


The meeting, chaired by Premier Li Keqiang, also called for banks to ensure funding to existing projects and meet reasonable funding needs of local government financing vehicles (LGFVs), which have been subjected to tight official scrutiny. — Reuters


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