The Chinese government, which has realized for quite some time that a robust economy depends on reliable transportation, a comprehensive power grid and effective telecommunications systems, has given its infrastructure projects a lot of focus over the past several decades.
From the late 1990s until the middle of last decade, over 100 million Chinese benefited directly from power and telecommunications upgrades. Between 2001 and 2004, investment in rural roads grew by a massive 51% annually, one of the world’s fastest. And recently, the the Chinese government has used a great amount of infrastructure spending to hedge against flagging economic growth.
Beijing has ambitious plans for the future as well. Its goal is to bring the whole nation’s infrastructure up to the level of a high-income country, while using efficient transport systems to bring its different regions closer.
However, not just the Chinese economy but the global economy is expected to grow slower in 2016 and beyond. There seems to be a need for China to complete its infrastructure projects ahead of their scheduled time to spur growth.
“We Need to Invest in Infrastructure Faster”
Many economists expect China to report that July-September economic growth has dropped below the 7% mark for the first time since the global financial crisis of 2007-2008.
According to a top state advisor, there are two ways to quickly stabilize China’s economic growth. First, investment in infrastructure has to happen at a quicker pace. Second, the cost of financing for companies has to be lowered by the central bank combined with an increase in overall credit.
Yu Bin, the head of micro economy research department at the State Council’s Development Research Centre, said that the above mentioned two ways were the only ones possible since property and manufacturing investment continues to be relatively weak.
He also added that China really needs to speed up its hydropower projects, develop its 53 million hectares of high-standard agricultural land, and increase investment in rural roads.
The higher authorities also acknowledged the growing concerns about the Chinese economy.
The Premier of the State Council of the People’s Republic of China, Li Keqiang, said that domestic growth of around 7% is still impressive and certainly not “weak”, like what some are describing. This is especially true with weakness in other emerging markets throughout Latin America and Eastern Europe.
The president of the People’s Republic of China, Xi Jinping, also admitted that he was concerned about the Chinese economy but did not specify any further.
China’s Infrastructure Development Plan to Revive Growth
With acknowledgement from top authorities in Beijing, a series of implementations aimed at improving the situation have been carried out.
With the main goal of accelerating construction investment, the government has tried to draw in more private financing through the increased use of public-private partnerships (PPP) and not having taxpayers handle all the costs.
According to China’s Ministry of Finance (MOF), there were 206 proposed PPP projects in September which were valued at 659 billion yuan (US$104 billion). The ministry in September also started a 180 billion yuan fund with some of China’s largest financial institutions to invest in PPP projects.
The state advisor, Yu, also called out for the central bank to adjust to the new economic reality by lowering the cost of financing for companies and by increasing the ease of obtaining credit.
It is not as if China has not been taking measures to drive economic growth. Since late 2014, it has already initiated several measures including cutting benchmark interest rates five times since last November and lowering the reserve requirement ratio for lenders.
With that said, some analysts have hopes that the central bank will cut interest rates even more and lower and the reserve requirement ratio further by the end of 2016.
According to Yu, China should also propose new measures to encourage companies to merge and restructure, and making way for bankruptcies to naturally occur to fix problems such as mismanagement and competitiveness in some business.
With the aim of stabilizing economic growth, the Chinese government seems to be doing all it can by speeding up investment with the help from the central bank.