Govern­ment rolls out rail­way stim­u­lus plan

China Daily (Canada) - - BUSINESS - By ZHENG YANGPENG zhengyang­peng@chi­nadaily.com.cn

In­vest­ment has again emerged as a key means to prop up the econ­omy as a run of dis­ap­point­ing eco­nomic fig­ures have raised con­cerns that eco­nomic growth in the first quar­ter might slip be­low the of­fi­cial tar­get of “about 7.5 per­cent”. The South­ern Hainan provin­cial govern­ment has planned a 1.8 tril­lion yuan ($290 bil­lion) in­vest­ment pack­age that in­cludes a high­way net­work, a med­i­cal tourism zone and a space ex­plo­ration theme park, China Se­cu­ri­ties Jour­nal re­ported. A pro­gram of co­or­di­nated de­vel­op­ment for Bei­jing-Tian­jinHe­bei is also gain­ing trac­tion.

As spec­u­la­tion rose as to whether some provin­cial gov­ern­ments may again be re­sort­ing to their own ver­sions of an in­vest­ment-spear­head­ing stim­u­lus pack­age, ex­perts dis­missed the pos­si­bil­ity of lo­cal govern­ment rac­ing each other to roll out such pack­ages.

“Lo­cal gov­ern­ments have limited scope to primethep­umpof theecon­omy be­cause they are bur­dened by heavy debt,” said Liu Shengjun, an eco­nom­ics pro­fes­sor at the China Europe In­ter­na­tional Busi­ness School.

In­stead, the cen­tral govern­ment, which car­ries a much lower debt ra­tio, will step in, us­ing in­vest­ment to spur the econ­omy.

Of the three ma­jor “tar­geted stim­u­lus” mea­sures an­nounced af­ter Wed­nes­day’s State Coun­cil ex­ec­u­tive meet­ing, which was presided over by Pre­mier Li Ke­qiang, two were about in­vest­ment: greater sup­port for the re­de­vel­op­ment of run-down ur­ban ar­eas and more in­vest­ment in rail­way con­struc­tion.

“Ac­cel­er­at­ing the re­de­vel­op­ment of shan­ty­town ar­eas is a manda­tory task for im­prov­ing people’s lives. It also could ef­fec­tively pull up in­vest­ment and boost con­sump­tion,” a state­ment from the State Coun­cil said. It also said that more in­vest­ment in rail­ways could in­crease rev­enue and pull up a num­ber of re­lated in­dus­tries.

For the first time, the na­tion will es­tab­lish a spe­cial in­sti­tu­tion un­der the China De­vel­op­ment Bank, a pol­icy bank em­pow­ered to is­sue spe­cial bonds to fi­nance gov­ern­mentsub­si­dized hous­ing projects.

In the rail­way sec­tor, the govern­ment vowed to deepen in­vest­ment regime re­forms. Mea­sures in­clude set­tin­gupa lon­gawaited de­vel­op­ment fund, more types of fi­nanc­ing bonds and greater par­tic­i­pa­tion of pri­vate cap­i­tal.

A to­tal of 6,600 kilo­me­ters of new rail lines will be put into use this year, an in­crease of more than 1,000 kilo­me­ters over last year, ac­cord­ing to the state­ment. Of the newly added lines, nearly 80 per­cent will be in cen­tral and western China.

The govern­ment said it will is­sue bonds worth 150 bil­lion yuan ($24 bil­lion) to fi­nance rail­way con­struc­tion this year.

Chen Hufei, a macroe­co­nomic an­a­lyst with Bank of Com­mu­ni­ca­tions Ltd, said these mea­sures are ex­pected to pre­vent the flag­ging in­vest­ment sec­tor from slip­ping fur­ther.

Fixed-as­set in­vest­ment growth in the first two months of the year dropped to a record low of 17.9 per­cent, down from 19.3 per­cent for the whole of 2013.

“As property in­vest­ment fell, and the man­u­fac­tur­ing sec­tor be­came plagued by ex­ces­sive ca­pac­ity, in­vest­ment in in­fra­struc­ture be­came key for the cen­tral govern­ment,” Chen said, adding that his re­search team fore­cast that first quar­ter in­vest­ment growth would end at 18.5 per­cent.

In­vest­ment has ac­counted for about a half of China’s GDP in re­cent years.Property, man­u­fac­tur­ing and in­fra­struc­ture are the three main com­po­nents of the world’s sec­ond-largest econ­omy’s fixed-as­set in­vest­ments.

The cur­rent se­lec­tive stim­u­lus pack­age is a re­run of mea­sures adopted in mid-2013, when the econ­omy was los­ing steam, an­a­lysts said, but they also saw signs of re­form in with the in­vest­ment-led pro-growth mea­sures.

For ex­am­ple, the setup of a rail­way de­vel­op­ment fund is a new ini­tia­tive, al­though it has been ad­vo­cated for years. Ex­perts said it is a mech­a­nism to en­cour­age pri­vate cap­i­tal’s par­tic­i­pa­tion, as in­vestors are doubt­ful about us­ing tra­di­tional in­vest­ments.

China also sig­naled its will­ing­ness to loosen its tight con­trol over rail­way prices by an­nounc­ing on Tues­day that freight prices of a rail line in coal-rich north­west­ernChina will be de­ter­mined solely by oper­a­tors, cus­tomers and in­vestors.

This is the first time

that

China

has opened up prices of rail trans­porta­tion.

Xie Yax­uan, head of macroe­co­nomic re­search with China Mer­chants Se­cu­ri­ties Co Ltd, said the govern­ment prefers to use re­form to spur growth, though it takes more time.

“The tra­di­tional meth­ods are like an­tibi­otics: a quick cure but with side ef­fects. The re­form mea­sures are like tra­di­tional Chi­nese medicine: fewer side ef­fects but a slower cure. The lat­ter is good, but I’mnot op­ti­mistic about its short-term ef­fec­tive­ness,” he said.

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