China is set to undertake a fresh infrastructure spending frenzy to help save its economy, which is on the verge of collapsing due to its COVID-19 lockdown measures.
In a Tuesday meeting, Chinese President Xi Jinping declared to his senior economic officials that there must be "all-out efforts" to be made to increase construction in the country to boost economic growth and domestic demand.
According to a CNN report, the government-run Xinhua News Agency said that Xi Jinping noted that the country's infrastructure was still "incompatible" with the needs for economic growth and security. He pushed for more transportation, energy, and water conservation projects, as well as new supercomputing, cloud computing, and artificial intelligence facilities.
President Xi didn't say how much China intends to spend on the new infrastructure initiative. According to the most recent official figures available, infrastructure spending grew 8.5% in the first quarter of 2022 over the same period the previous year.
China's Economy Nears Breaking Point
Xi's comments suggest that Beijing is becoming deeply concerned about the country's declining economic prospects and is reverting to a policy it had downplayed in recent years to relieve strain on local government finances and foster consumption-driven growth.
However, China's COVID-19 lockdowns have pushed the world's second-largest economy near a snapping point, according to Société Générale analysts. The latest setback has been the imposition of tight limitations in Shanghai and other major Chinese cities. A real estate recession and a crackdown on private corporations were already having an impact in China. In March, joblessness reached a 21-month high.
Several investment banks have downgraded their growth estimates for China in the last month. The International Monetary Fund (IMF) forecasted 4.4 percent GDP this year, down from 4.8 percent previously, citing risks posed by Beijing's stringent zero-COVID policy. This is significantly lower than China's official prediction of 5.5%.
According to Tommy Wu, a lead economist from Oxford Economics based in Hong Kong, the Chinese government's COVID-19 measures are significantly hurting the nation's domestic demand, "which has already been weak even before the recent Omicron outbreaks and lockdowns."
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Wu added that such restrictions are also affecting China's industrial production and export activity, which can worsen the ongoing global supply disruptions, per Time.
The expert warned that if Shanghai fails to resume production by next month, all of the tech and industrial players with supply chains in the area will stop completely, ", especially the automotive industry."
"That will pose severe consequences and massive losses for the whole industry." Wu said in a WeChat post.
More Debt To Fund Infrastructure Projects
Analysts expect the government to employ more debt to finance new infrastructure projects, reversing recent attempts by the administration to reduce the government's heavy reliance on debt for growth, per CNBC.
Monica Li, director of equities at Fidelity International, said in an email that the net issuance of special local government bonds had exceeded 35 percent of the full-year objective, which is substantially higher than the 10% to 30%rate of the previous three years.
She said her team predicts more bond issuance in the first part of the year than in the second half to get infrastructure projects off to a head start. "In addition to increased fiscal spending, multiple funding sources, "including public-private partnerships," will be used to fund infrastructure.
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