China boosts growth with infrastructure

Shanghai | China’s government has approved a raft of infrastructure projects, including five new rail lines, and outlined plans to spend more on irrigation, agriculture and social housing as two new manufacturing surveys confirmed the economy’s slow start to the year.

Economists have cautioned investors not to expect a big-bang stimulus package like the one rolled out in response to the global financial crisis. However, there is increasing evidence the government has started to boost public spending in an effort to keep growth at its target level of “about 7.5 per cent”.

The state-owned China Securities Journal ran a story on its front page on Tuesday outlining the measures the government was likely to take to boost growth, emphasising this was “fine-tuning” rather than a big stimulus.The newspaper said the measures would include more spending on affordable housing, agriculture, irrigation, rail projects and environmental protection.

The National Development Reform Commission recently approved two coal mining projects in InnerMongolia as well as five rail lines. One analyst said some of those rail projects had been slated for next year but were brought forward. All up, the spending would be more than 150 billionyuan($26.5bil]ion).Officials from the NDRC, China’s top economic planning agency, also said there would be more spending on agriculture infrastructure projects at a press conference last week.

This year they expect to spend 70 billion yuan on the projects, which are mainly focused on irrigation.

Meanwhile, Premier Li Keqiang said over the weekend the government was committed to its policy of transforming shanty towns into social housing with projects to build more than three million new homes already underway.

It is unclear how much of this money is additional spending or part of China’s normal budget allocations. “There has been a little bit of stimulus activity on the quiet” said Macquarie’s Shanghai-based commodities analyst Graeme Train.

“But we think some in the market are getting too hopeful for a big stimulus.” The government has been under pressure to step in and rev up the economy following a run of weak economic releases. Exports, domestic spending, activity in the property sector and industrial production have all been lower than expected.

A government survey released on Tuesday showed that business activity across the manufacturing sector picked up only slightly in March, which is typically a strong month for factories as they ramp up production after the Chinese New Year holiday at the start of the year.

The official Purchasing Managers’ Index (PMI) rose to 50.3 from 50.2 in February, a smaller increase than in previous years.

The HSBC/Markit PMI, which surveys smaller firms in the private sector, painted an even bleaker picture, showing business conditions at their worst in eight months, as firms shed jobs and new orders fell. The official PMI gives a broader view of the manufacturing sector as it includes the big state-owned firms.

Westpac economist Huw McKay said in a note “the combined surveys make for unhappy reading”. The manufacturing sector “is experiencing a pronounced soft patch that has some months to run”.

Still, the small bump in the official PMI suggests that economic activity may be stabilising and that international demand is picking up. “While conditions in the sector remain subdued, they haven’t deteriorated as fast as some have feared,” said Capital Economics China economist Julian Evans-Pritchard He said that was supported by preliminary data on electricity output, which according to the NDRC – grew by 8.5 percent year-on-year during the first 24 days of last month, up from growth of 5.5 per cent in February. “Meanwhile, domestic weakness has been partly offset by healthy foreign demand,” he said.

Kcv points Government has been under pressure to step in and help the economy.

Measures include irrigation, rail projects, affordable housing and agriculture.

Leave a Reply

Your email address will not be published. Required fields are marked *