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China to rein in infrastructure building binge

Infra News - Published on Thu, 07 Dec 2017

Image Source: i-scmp.com
South China Morning Post reported that China’s frenzied construction of roads, bridges and subway systems is set for a major slowdown, adding a headwind to economic growth in 2018. The nation’s fixed-asset investment in infrastructure will grow 12 per cent next year, according to the median estimate in a Bloomberg survey, down from almost 20 per cent in the first 10 months of this year. All 18 economists in the survey anticipated a moderation, adding to reports by Morgan Stanley, Goldman Sachs and UBS Group predicting a similar trend.

The cooling construction fever is taking shape as the authorities renew a pledge to focus on debt management following the Communist Party Congress in October. In a rare move, China has suspended subway projects in some cities and scrutiny has also toughened on public-private partnerships – until now a widespread way to fund projects.

The easing could even threaten global capital expenditure growth as China represents one-fifth of the world’s total investment, according to estimates by Oxford Economics.

Mr Robin Xing, chief economist at Morgan Stanley Asia in Hong Kong, said that “China is stepping up efforts in deleveraging, reduction of overcapacity, pollution control and reining in property prices. So we believe investment in property and infrastructure will slow down, leading to the deceleration in the economy.”

Mr Xing estimated the slowdown would dent demand for commodities, while having a limited impact on employment and consumption, given resilience in the “new economy” led by services. The bank forecasts infrastructure investment growth to slow to about 13 per cent next year and 12 per cent in 2019.

While slower infrastructure growth may weigh on the overall expansion, it may also aid the nation’s transformation towards a more balanced growth model. The building boom, while promoting connectivity and urbanisation, has also swollen the nation’s debt pile.

As of the end of October, China had spent CNY 11.3 trillion on infrastructure this year, almost matching 2016’s full-year figure. That was supported by the state’s previously generous stance on public-private partnerships projects, now set for leaner times amid the focus on deleveraging.

The Ministry of Finance last month banned local governments from guaranteeing returns for private investors in projects or backing a project’s debt. The national watchdog for state-owned enterprises also published rules to regulate state companies’ participation – a potential blow to a major source of funding.

Source :

Posted By : Nanda Koijam on Thu, 07 Dec 2017
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