Financial Times | By: Various Authors | August 24, 2017:
China’s reliance on infrastructure to drive overall investment hit a new high last month, raising worries that Beijing’s intensifying crackdown on local government debt, which mainly finances infrastructure, will drag down overall growth.
Fixed-asset investment remains the biggest engine of China’s economy and also fuels global demand for commodities such as coal, steel and base metals. Fixed investment contributed 45 per cent to China’s GDP last year, by far the highest share of any major economy. The US share is 22 per cent, while Japan’s is 30 per cent.
The infrastructure share of overall fixed-asset investment hit 21.4 per cent in the year to July, the highest on record, according to FT calculations of official data. That compares with 17.7 per cent for real estate.
“It’s a very important data point. There are so many different ways that local governments finance urban infrastructure. But now there’s a real concern about how they can continue,” said Shen Jianguang, China economist at Mizuho Securities.
“I believe we’re headed for another deleveraging cycle like the one in 2010-11. The growth slowdown will probably be sizeable over the next year.”
Chinese economic planners have turned more heavily to infrastructure as stimulus since 2015, preferring this approach over further investment in manufacturing, where the initial round of post-2008 stimulus caused a surge of excess capacity.
While working to cut overcapacity in steel, coal and other commodities, investment was channelled into roads, railways and water projects.
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