China economy: Government pins revival hopes on infrastructure stimulus
Infrastructure stimulus, that’s hoped will revive the ailing China economy, has been boosted once again, with a further US$44.8 billion dollars pledged by Premier Li Keqiang at an executive meeting of the State Council yesterday.
According the the state-owned Xinhua News Agency, the funding will be raised through the issuance of new bonds and be used to supplement up to 50% of the capital required for major infrastructure project.
“During the year, a batch of projects such as national expressway connectivity, smooth bottleneck sections of inter-provincial highways, construction of inland waterway channels, and port function enhancement will be started,” said Xinhua.
The new cash injection comes on top of a $120 billion infrastructure funding package announced in June, that’s being delivered by state-owned banks.
Infrastructure stimulus could boost China’s stock market
As China emerges from an extended period of harsh COVID-19 lockdowns, and faces slowing domestic consumption along with problems in the property sector, it’s now clear the Government is taking the text-book infrastructure stimulus approach to accelerating growth.
“We expect infrastructure construction to become one of the most important tools (for China’s economy) in the coming months. When economic activities slow down in some cities, infrastructure spending can largely help increase workers’ productivity. It will also create many job opportunities and increase consumer confidence. These factors together will help accelerate growth activities,” says chief strategist at Fullerton Research, Jimmy Zhu.
Zhu notes the divergence between U.S. and Chinese monetary policy.
In China’s major stimulus is being deployed to boost the economy, while in the U.S., the Fed is tightening policy in order to bring extreme inflation under control.
The strategist suggests this could see the Chinese stock market rebound strongly after a dismal 12 months.
“Since the beginning of May, Shanghai stocks have gained about 2.8 percent, outperforming many other major global equity indices. The gains were partly driven by market expectations of more easing and pro-growth policy, which could further strengthen local stocks once they are introduced.
“Over the past 20 years, Shanghai stocks have been very sensitive to monetary policy in both tightening and easing cycles. For example, the stocks’ rallies in late 2008 and early 2015 were largely driven by the monetary stimulus, while the selloffs in late 2007 and middle of 2011 were partly due to monetary tightening in those periods.”