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China’s Infrastructure Binge Continues

china-train-record

From Bloomberg Business:

China spent more than $10.8 trillion on infrastructure from 2006 to 2015, according to Bloomberg calculations. Outlays for roads, airports, ports, railways, and the like rose 17.4 percent last year, far outpacing the country’s 6.7 percent expansion in gross domestic product.

China spent more than $10.8 trillion on infrastructure from 2006 to 2015, according to Bloomberg calculations. Outlays for roads, airports, ports, railways, and the like rose 17.4 percent last year, far outpacing the country’s 6.7 percent expansion in gross domestic product.

With economic growth projected to fall to 6.5 percent this year, the lowest rate since 1990, President Xi Jinping’s government is ever more dependent on the stimulus infrastructure projects provide. Beijing will invest 3.5 trillion yuan in railways by 2020, which among other things will pay for a more than 50 percent expansion of the country’s high-speed network, the State Council Information Office said in late December. The central government also has pledged 3.4 trillion yuan for rural water, road, electricity, and communication projects through 2020, the official Xinhua News Agency reported on Feb. 17. “There’s just an absolute boatload of infrastructure investment going on,” says Tom Orlik, chief Asia economist at Bloomberg Intelligence. “In some respects, it’s almost like the classic Keynesian example of paying someone to dig a hole and paying someone to fill it up.”

The relentless spending on new construction is weighing on China’s public balance sheets. Total debt was about 260 percent of GDP in 2016, up from about 160 percent in 2008, according to calculations by Bloomberg Intelligence. “The pace at which China has taken on debt rings alarm bells,” Orlik and fellow Bloomberg Intelligence economist Justin Jimenez wrote in a report published on Feb. 23, noting that precipitous increases in debt in other countries have been a prelude to a financial crisis.

China’s central and local governments “need more help so they’re not only funding projects by themselves,” says Gabriel Wong, head of the China corporate finance practice in Shanghai for PwC. That’s why the country has begun experimenting with public-private partnerships (PPPs) in which private investors supply a large portion of the financing for a project in exchange for a promised stream of payments, either from the government or from users. China’s National Development and Reform Commission announced PPPs worth 4.23 trillion yuan from May 2015 to October 2016, Xinhua reported in October. The Finance Ministry announced a roster of more than 500 projects valued at 1.2 trillion yuan in October, according to China Daily.

Whether the new model will alleviate the stress on government finances is uncertain.

Read the rest here.  It’s a very good overview of how China’s infrastructure spending binge continues unabated.

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