China revs up spending program
BEIJING (Reuters) — 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.
With its trade war with the US threatening to pile more pressure on China’s 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 fixedasset investment expanded by a less-than-expected 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.
Since the trade war started, Beijing has shifted its focus to boosting domestic demand and is taking a more measured approach to curbing financial risks and debt, which has pushed up borrowing costs and numbers of defaults.
The finance ministry said 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 billion) of such bonds this year.
In the past month, the government has promised to raise spending on railways and roads – its traditional approach when the economy slows – though it said investment will be more targeted.
The transit authority of the eastern city of Suzhou said China’s state planner has approved a $14 billion expansion of its urban rail network. That followed approval for a similar project in a northeastern city.
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, 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 EvansPritchard, senior China economist at Capital Eco- nomics, wrote in a note.
“However, these are unlikely to put a floor beneath economic growth until the middle of next year.”
Many analysts predict a steady stream of support measures in the coming months. The July data “is likely to prompt more policy support,” DBS of Singapore said in a report. The pace of fixed asset investment was the weakest in records going back to early 1996, according to data on Reuters Eikon. Investment had been expected to grow 6.0 percent in the first seven months of the year, steady from January-June. For July, fixed-asset investment grew three percent from a year earlier. Retail sales also missed expectations. They rose 8.8 percent in July from a year earlier, below an expected 9.1 percent and down from nine percent in June, despite a broad import tax cut last month.