Image: Reuters Berita 24 English - According to two people with knowledge of the situation, China will establish a state infrastructure inv...
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| Image: Reuters |
Berita 24 English - According to two people with knowledge of the situation, China will establish a state infrastructure investment fund worth 500 billion yuan ($74.69 billion) to boost infrastructure spending and boost a sagging economy.
China's economy has started to slowly recover from the supply shocks brought on by the widespread lockdowns that have been in place since the second quarter, but growth still faces challenges from the still-sluggish real estate market, weak consumer spending, and concern over any future infection waves.
The sources stated without going into further detail that the fund is anticipated to be established in the third quarter.
Requests for comment from Reuters were not immediately answered by the National Development and Reform Commission or the Ministry of Finance.
Although analysts claim it will be difficult to achieve China's official gross domestic product target of about 5.5 percent for this year without abandoning its strict zero-COVID strategy, the country has recently unveiled a slew of economic support measures.
In order to offset the effects of COVID-19 this year, fiscal stimulus has played a significant role in supporting the world's second-largest economy, and the central bank has been gradually easing liquidity conditions to reduce financing costs.
The government is stepping up its infrastructure campaign, reviving an old economic strategy, and committing 800 billion yuan in new credit quota and 300 billion yuan in financial bonds for policy banks to finance large projects.
Consumers in China are tightening their spending habits as a result of job losses and declining incomes, and exporters are facing challenges from a potential global economic downturn as major central banks tighten monetary policy to combat rising inflation. According to analysts, other risks to the outlook include the conflict in the Ukraine, high raw material costs, and supply chain snags.
For the time being, China's consumer inflation is largely under control, giving authorities room to boost the economy, though some analysts warn that later in the year, the effects of the global cost-push factors may start to be felt in domestic prices.
Beijing's best course of action is to invest more money in expensive infrastructure projects, but as property spending declines, that may not be enough to fill the gap.
China has been attempting to develop new infrastructure centred on 5G, artificial intelligence, and data because the returns on traditional projects like highways, railways, and airports are now significantly lower.
FINANCIAL GAPS
The new quota is likely to be larger than 1.46 trillion yuan for 2022, according to sources who spoke to Reuters. China will issue 2023 advance quota for local government special bonds in the fourth quarter.
In order to meet the 3.65 trillion yuan special bond quota for 2022, the cabinet has instructed local governments to issue 3.45 trillion yuan in infrastructure-related special bonds by the end of June.
To finance significant projects, several government advisors have suggested issuing special treasury bonds later this year.
China faces significant challenges in meeting its growth objective, according to Wang Yiming, a policy adviser to the central bank, who suggested expanding the budget deficit or issuing special treasury notes as options during a symposium in late June.
China needs achieve 7-8 percent economic growth in the second half of 2022, which is 3–4 percentage points higher than the growth rate in the third and fourth quarters of last year, in order to accomplish the full-year target, according to Wang.
In contrast to the first quarter's 4.8 percent growth rate, he predicts that China's GDP would expand by only approximately 1% year over year in the second quarter.
Analysts at Citi anticipated a fiscal gap of 1-2 trillion yuan this year in a research released on Monday, but the likelihood of issuing special bonds may decrease as the government turns to semi-fiscal funding, such as through policy banks.
They stated, "We believe special CGBs (Chinese government bonds) are still a possibility, but the likelihood has decreased."
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