China heightens infrastructure spending to prop up slowing economy

The government is actively spending for railway, highways, airports and water conservancy projects.

The Chinese government’s recent approval to another wave of infrastructure projects for 2019 could be a key component to counter the country’s slowing economy.

For one, if China Railway Corporation’s CNY80b in railway projects come to fruition, it would represent as much as 7% increase in actual expenditure for 2018 although the government is also targeting the establishment of highways, airports, water conservancy and public services.

China’s economy has been slowing down after GDP growth slowed to 6.4% with Fitch Ratings expecting headline figures to taper to 6.1%. As a result, the government has been encouraging financial assistance for infrastructure projects to stem the slowdown.

“The central government is set to provide more fiscal support for projects than in previous stimulus efforts, and local government bond issuance will also play a much more important role. Central government supervision and control of local government borrowing has also increased,” said Terry Gao, senior director of international public finance ratings at Fitch Ratings.

Overall, the heightened spending remains in line with Bejing’s deleveraging campaign as most of the borrowing for the infrastructure projects are likely to be kept on-balance sheet with greater reliane on local government bonds and arranged loans from state banks.

“The shift to a more supportive policy stance - and infrastructure stimulus in particular - represents a step away from the previous focus on deleveraging,” Gao continued. “However, the authorities' approach to funding new infrastructure projects demonstrates that the focus on containing financial risks has not been abandoned.”