CHINA STEPS UP FISCAL SPENDING AS IT APPROVES $125BN OF RAIL PROJECTS / THE FINANCIAL TIMES

China steps up fiscal spending as it approves $125bn of rail projects

Measure aimed at boosting economy highlights fears about slowing growth

Tom Hancock in Shanghái


China will add 6,800km of rail lines this year © Reuters


China has approved new rail projects worth more than $125bn in the past month as it steps up fiscal spending to counteract a slowdown in its economy, a move that could give Beijing more breathing space in its trade confrontation with Washington.

The National Development and Reform Commission, China’s top planning agency, has approved urban rail projects in eight cities and regions worth a total of Rmb860bn ($125bn) since December 5, according to official statements.

The investment drive comes as Washington and Beijing on Monday began their first face-to-face talks since presidents Donald Trump and Xi Jinping agreed a trade truce at the G20 Summit in Buenos Aires late last year.

It also highlights Beijing’s fears about slowing growth, with official data last week showing the first monthly contraction in manufacturing activity since 2016, and China’s central bank issuing its largest cut to bank reserve requirements in over a year.

China will add 6,800km of rail lines this year, a 40 per cent increase from the amount added last year, said the state-run China Railway Corp. The plans include 3,200km of high-speed rail.

The surge in project approvals is in dramatic contrast with the beginning of 2018, when Beijing abruptly cancelled subway lines in several cities to slow the growth of local government debt.

Beijing has signalled an easing of its deleveraging drive in recent months, after investment growth in fixed assets fell to the lowest rate on record, and retail spending growth slowed to its slowest pace in 15 years.

Cheng Shi, chief economist at the international division of Chinese bank ICBC, wrote in a note this month that he expected four separate cuts to bank reserve requirements this year, the same number as in 2018. “In 2019, fiscal policy will replace monetary policy to become the main tool to manage short-term demand,” he said.

ING predicts Beijing will unleash a Rmb4tn fiscal stimulus this year, which will help cushion downward pressure on demand from the trade war with Washington. “Though some fiscal money will be used for debt repayment and loan rollovers, the rest will go into infrastructure projects, which will support manufacturing activities, even if the trade war continues to escalate,” said Iris Pang, the Dutch bank’s chief China economist.

Among the projects approved, Shanghai will add six subway lines and three inter-city rail lines priced at Rmb298bn, while the city of Wuhan in central China will add four subway lines and four inter-city lines costing Rmb147bn. Jiangsu province in east China will build Rmb218bn of inter-city lines as it seeks to connect its urban centres with populations above 200,000. Half of the spending will be funded by tax revenue and equity financing, the NDRC said, with the remainder coming from bank loans and other debt.

China has in the past decade constructed some of the world’s most advanced infrastructure — including the longest high speed rail network of any country, covering more than 25,000km — meaning future projects will face diminishing returns.

While China accounted for 30 per cent of global city rail at the end of last year by track length, it accounted for only a quarter of ridership, a sign that some lines were underused, according to the International Association of Public Transport.

But some economists argue that there is room for accelerated infrastructure spending. “China has over-invested in industrial infrastructure, but I do not think it has over invested in infrastructure overall,” said Bo Zhuang, China economist at TS Lombard in Beijing. “It is under-invested in urban and consumption related infrastructure, urban metros, sanitisation, and anything to do with urban services.”