“Chinese authorities are following through on pledges to provide sufficient stimulus to keep the rate of economic growth above six percent. Green shoots in the data out of China are becoming more apparent, and as activity there picks up, export-driven economies across the globe should benefit.” (Dominick DeAlto, BNP Paribus, April 2019)

“China invests US$163.2 billion in infrastructure to stave off economic slowdown and effect of trade war. Since the start of December, the National Development and Reform Commission has approved 16 projects. Projects include the Shanghai Urban Rail Transit, worth US$44.24 billion having approved just seven in the previous 12 months’ worth just US$15.69 billion” (Amanda Lee, South China Morning Post, Jan. 29, 2019)

China's infrastructure investment appears to be accelerating this year as the government clearly intends to support the economy through a slower world economic growth phase made worse by the trade dispute with the US.

As the quotation and one of the charts indicate, there has been a serious acceleration in investment spending this year. Last year the government announced that the amount of special bonds issuance to provincial governments for construction of major infrastructure projects will be sharply increased.

China’s investment stimulus will be particularly beneficial for Europe, where signals coming out of its export-driven manufacturing sector are increasingly troubling.

According to Morgan Stanley, Beijing spending amounted to 1.35 trillion yuan ($199.54 billion) via special bond issuances for provincial governments' infrastructure projects in 2018. The completion of that spending plan was scheduled for September 2019.

 Beijing also pledged to reduce project approval times for infrastructure spending by one-half and approve central-level project investments by March of this year.

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China's infrastructure investments should increase about 7.5% this year. As one of the following charts illustrates, infrastructure investment growth slumped in 2018 compared to 2017.

The application of counter-cyclical spending by China using infrastructure bond permits has happened before and has worked out well in the past. Consider the chart that shows how infrastructure spending accelerated during the 1997 Asian financial crisis and the again during the serious global recession in 2018. During the 2008 global financial crisis China expanded its infrastructure investments, particularly in rail and highways.

In fact, China leads the world in infrastructure investment. China’s expansion of its road network, railways, skyscrapers and even whole new cities has been quite remarkable. Of course, this infrastructure expansion helped accommodate the soaring economic growth rates of the past;  

China’s economy has been clearly slowing over the past year. The economy decelerated from a 6.8% y/y pace in the fourth quarter of 2017 to 6.4% growth as of the fourth quarter of last year.

Last year’s 4Q growth rate was the slowest since the global financial crisis and coincided with the intense trade dispute with the US, weakening domestic demand and alarming off-balance-sheet borrowings by local governments.

In all of 2018, the economy expanded 6.6%, the slowest recorded growth since 1990.

China’s Recent Real GDP Growth Rate Has Been Slowing

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China’s Annual Real Economic Growth Rate Since 2009 

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One of the drivers of China’s industrial rebound has been the fiscal stimulus.

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