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China's infrastructure spending growth stays resilient
By Tao Dong and Deng Weishen |
November 19, 2012, Monday
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ACCORDING to the Ministry of Railways, railway fixed asset investment in China reached 81 billion yuan (US$13 billion) in October, growing by 141.2 percent compared with the same period last year. Data from the National Bureau of Statistics showed a similar picture, railway and highway transport related fixed asset investment went up by around 50 percent year on year in October following the 47 percent year-on-year increase in the prior month.
On top of the projects under construction resuming, a series of new railway and highway construction projects commenced during the month. For example, Jingzhou-Yueyang railway project, with total investment budgeted to be 170 billion yuan, commenced on October 16.
The central government made an additional budget of 20 billion yuan for infrastructure investment in early October, however most of the infrastructure investment projects approved by the National Development and Reform Commission require the majority of funding to come from local government and loans.
In recent months, we saw the pick-up of trust loans and off–balance financing activities, which we believe will provide funding support for local government to kick off some of the approved projects.
Traditionally, infrastructure investment starts to pick up in the last few months of the year as governments spend their remaining annual budget balance.
But for 2011, though railway and highway investment also went up since August, the pace was much weaker than what was seen in previous years, resulting in a relatively weak "peak-season" to set a low base for this year's annual growth.
Feedback from the ground suggests that private investment still has not been able to gather momentum. The resilient growth from rail and highway projects helped to compensate for weakness in organic private investments growth, thus enabling the 22.2 percent year-on-year fixed asset investment growth in October.
While we believe public investment helped the economy find a stable floor, without re-engaging private investment, it will be difficult for the economy to gain strong growth momentum for the coming quarters.
Most of the projects obtained approval from the NDRC earlier in the year rather than the usual two days in early September during which the NDRC approves a large batch transportation projects.
As the government manages to find more funding, it shall be able to kick off more approved projects in hand. We therefore would expect public infrastructure investment activities to remain resilient in the coming months.
However, as the winter arrives, weather conditions in much of north and west China will be less favorable for construction projects, which could slow down the pace of the projects. Moreover, recent data releases sent consistent signals of a stabilizing economy.
In our view, it is unlikely there will be additional large-scale stimulus packages coming from the government.
Tao Dong and Deng Weishen are research analysts with Credit Suisse. The article was adapted from a note dated November 15. The opinions are their own.
On top of the projects under construction resuming, a series of new railway and highway construction projects commenced during the month. For example, Jingzhou-Yueyang railway project, with total investment budgeted to be 170 billion yuan, commenced on October 16.
The central government made an additional budget of 20 billion yuan for infrastructure investment in early October, however most of the infrastructure investment projects approved by the National Development and Reform Commission require the majority of funding to come from local government and loans.
In recent months, we saw the pick-up of trust loans and off–balance financing activities, which we believe will provide funding support for local government to kick off some of the approved projects.
Traditionally, infrastructure investment starts to pick up in the last few months of the year as governments spend their remaining annual budget balance.
But for 2011, though railway and highway investment also went up since August, the pace was much weaker than what was seen in previous years, resulting in a relatively weak "peak-season" to set a low base for this year's annual growth.
Feedback from the ground suggests that private investment still has not been able to gather momentum. The resilient growth from rail and highway projects helped to compensate for weakness in organic private investments growth, thus enabling the 22.2 percent year-on-year fixed asset investment growth in October.
While we believe public investment helped the economy find a stable floor, without re-engaging private investment, it will be difficult for the economy to gain strong growth momentum for the coming quarters.
Most of the projects obtained approval from the NDRC earlier in the year rather than the usual two days in early September during which the NDRC approves a large batch transportation projects.
As the government manages to find more funding, it shall be able to kick off more approved projects in hand. We therefore would expect public infrastructure investment activities to remain resilient in the coming months.
However, as the winter arrives, weather conditions in much of north and west China will be less favorable for construction projects, which could slow down the pace of the projects. Moreover, recent data releases sent consistent signals of a stabilizing economy.
In our view, it is unlikely there will be additional large-scale stimulus packages coming from the government.
Tao Dong and Deng Weishen are research analysts with Credit Suisse. The article was adapted from a note dated November 15. The opinions are their own.
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