This will give China's 'weak links' a shot in the arm
Reuters
Traditional medicine is still used throughout China, alongside modern medicine.
Premier Li Keqiang, who chaired the State Council meeting on Monday, vowed to accelerate major investment projects, especially in water conservancy, poverty alleviation, urban flood prevention, and other "weak links" in the economy.
"The key to expanding demand and creating a proper context for China's supply side structural reform is improving our own weak links," Li said in a statement Tuesday. "China is still a developing country, with huge development gaps among regions and also between rural and urban areas. We need to work hard to expand effective investment and make stronger efforts in improving weak links."
More specifically, the government will ease restrictions on infrastructure spending and grant equal access to private investors in areas like education and medical care, according to the statement. They are also encouraging policy banks to boost financial support to investment projects, and pushing state-owned enterprises to invest more in rural grid and telecommunication projects, the statement said.
It's now a good time to increase infrastructure spending because commodity prices are relatively cheap. Besides, increasing domestic demand appropriately helps China's supply-side reform, according to the statement. President Xi Jinping has been asking government officials to cut taxes, restructure or shut down "zombie companies," and tackle the housing glut since last year, which seems increasingly difficult to pull off amid the buildup of debt.
Last week, the government has announced that they will send inspection teams to make sure projects are carried out on the ground on a timely manner.
These two moves can really shake things up in the near term, since they can affect people's willingness and ability to invest, according to a client note led by Goldman Sach's Yu Song.
Here is Song (emphasis ours):
"As for willingness to invest, the inspection teams effectively force lower-level officials (who have often being accused of inertia during the anti-corruption campaign) to carry out their duties. While some skeptics may say that sending out inspections will not solve the problem fundamentally, actual experiences in recent years indicate that they do tend to make lower-level officials more proactive than usual. The ability to invest is mainly a question of funding - project approvals have become much less important than before the current leadership took over in 2013 as the government made the approval process much easier, and there are a large number of existing projects which are not being carried out in a timely fashion. The key focus of the funding is likely to be off budget quasi fiscal supports via policy banks. This funding has the practical advantage that it doesn't make the budget deficit appear to be too large and is relatively easily controllable by the government, contrary to the lending activities of listed commercial banks."
Li's remarks follow a series of government pledges to ramp up fixed asset investments, which have been on a decline, via the private sector to maintain their GDP growth target of at least 6.5%. That includes removing "political barriers" for private investments and allowing private capital to flow into sectors like oil and gas drilling.
China will likely see a stabilizing infrastructure investment growth at 15% to 20% year on year in the second half of 2016, according to a client note by Bank of America Merrill Lynch's Helen Qiao. While solid infrastructure investment growth is expected to help with overall economic growth in the period, the country could still see a slowdown, although not enough to trigger looser monetary policy.
Here is Qiao:
"Even with infrastructure investment growth remaining resilient in 2H2016, overall growth momentum will likely weaken as private investment (60% of FAI) continues to decelerate. But without substantial growth deceleration, there will unlikely be major policy easing."
Next Story
I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
Experts warn of rising temperatures in Bengaluru as Phase 2 of Lok Sabha elections draws near
Axis Bank posts net profit of ₹7,129 cr in March quarter
7 Best tourist places to visit in Rishikesh in 2024
From underdog to Bill Gates-sponsored superfood: Have millets finally managed to make a comeback?
7 Things to do on your next trip to Rishikesh
