China revs up spending plan as economy cools & investment growth at record low

BEIJING, Aug 14, (RTRS): The Chinese government is expediting plans to invest billions of dollars in infrastructure projects as its economy shows signs of cooling further, with investment growth slowing to a record low and consumers turning more cautious about spending.

With its trade war with the United States threatening to pile more pressure on China’s already slowing economy, Beijing on Tuesday reported downbeat economic data, rolled out a $14 billion urban railway plan and pushed local governments to speed up issuance of special bonds for funding infrastructure projects.

Official data showed fixed-asset investment expanded by a less-thanexpected 5.5 percent in January-July, a result of Beijing’s crackdown on lavish local government borrowing for projects to boost growth.

Industrial output also undershot expectations, weighed down by pollution curbs and an uncertain trade outlook, adding to expectations that authorities will roll out more policy stimulus.

The July data comes as the US prepares even tougher trade tariffs on im- ports from China.

Since the trade war started, Beijing has shifted its focus to boosting domestic demand and is taking a more measured approach in its campaign to curb financial risks and debt, which has pushed up borrowing costs and triggered a rising number of defaults.

The finance ministry said on Tuesday that local governments should accelerate issuance of special bonds for infrastructure projects over the next couple of months. Local governments are allowed to issue 1.35 trillion yuan ($196.13 billion) of such bonds this year.

In the past month, the government has pledged to ramp up spending on railways and roads – its traditional “go-to” approach when the economy slows – though it said investment will be more targeted.

Suzhou’s transit authority said China’s state planner has approved a $14 billion plan by the eastern city to expand its urban rail network. That followed approval for a similar project in a northeastern city over the weekend.

The central bank is also pumping more money into the financial system and urging banks to offer more loans at cheaper rates to small businesses. New yuan loans exceeded expectations in July, statistics showed on Monday, in one of the few bright spots in the most recent data.

“Admittedly, infrastructure spending may soon bottom out given the recent shift toward a looser fiscal stance and monetary easing should eventually drive a turnaround in credit growth,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.

“However, these are unlikely to put a floor beneath economic growth until the middle of next year.”

With the economy shifting into lower gear even without a trade shock, many analysts predict a steady stream of support measures in coming months.

The July data “is likely to prompt more policy support,” DBS of Singapore said in a report.