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Infrastructure project approvals buoy stimulus hopes

2012-09-08 10:36 Xinhua     Web Editor: Liu Xian comment

Stock markets on the Chinese mainland outperformed markets elsewhere Friday amid hopes that the central government will step up efforts to boost growth.

Approvals for infrastructure projects worth more than 1 trillion yuan (157.73 billion U.S. dollars) boosted stocks in multiple sectors and buoyed the Shanghai index in its biggest single-day rally in almost eight months.

Over the past two days, the National Development and Reform Commission (NDRC) has approved dozens of infrastructure projects for highways, ports, railways, sewage networks and waste treatment plants across the country.

The move has been seen as the government's latest effort to revive its economy, which has eased markedly over the past year and expanded 7.6 percent in the second quarter of 2012, marking its worst performance in more than three years.

Peng Peng, deputy director of a comprehensive reform research institute in south China's Guangdong province, said local governments will be the main players in shoring up growth this time, unlike in 2008, when the central government led stimulus efforts.

The country has been drip-feeding stimulus measures into the economy over the past few months in an effort to counteract the impact of slowing exports to Europe and boost domestic demand.

Expanding infrastructure spending is better for spurring growth than merely trying to boost consumption, although it risks exacerbating local government debt problems if not managed properly, said Zhuang Jian, an economist with the Asian Development Bank.

Local governments in China have been wrestling with a mountain of debt accumulated by local government financing vehicles (LGFVs) and shrinking fiscal revenues, as the government has used property curbs to bring down real estate prices. Land sales have long been a major source of fiscal revenue for local governments in China.

"Comparatively poor western provinces may get support from the central budget, but most of the local governments will have to pay their own bills for these projects," said Zhang Hanya, a researcher with the NDRC's investment research institute.

However, Zhang said this will not exacerbate problems concerning LGFVs, as construction on the projects may run for years, limiting the financial burden for local governments.

He said the approvals, although late for the year, will help lift growth in the coming two years. He said he expects China's economic growth to reach just under 8 percent in 2012.

The government has set an economic growth target of 7.5 percent for the year, down from an actual growth of 9.3 percent last year, according to a revised figure announced this week.

To bolster growth, the country's central bank has cut benchmark interest rates twice this year and trimmed the amount of money banks must keep in reserve three times.

A slew of economic figures due to be released on Sunday are expected to show moderate growth for August.

UBS Securities economist Wang Tao forecast that the country's economy will rise 7.3 percent in the third quarter from one year earlier and 7 percent in the fourth quarter.

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