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China Will Invest Trillions to Develop Manufacturing and Construction

In: Finance, Forex

At Beijing, local governments have drawn up lists of thousands of major projects, which they’re being put under intense pressure to see through. Planned investment this year amounts to at least 14.8 trillion yuan ($2.3 trillion).

That’s more than double the new spending in the infrastructure package the U.S. Congress approved last year, which totals $1.1 trillion spread over five years. Much of the spending in Washington’s plan, is aimed at transportation, water, and digital infrastructure.

China already has more than twice as much high-speed rail as the rest of the planet combined, as well as the world’s longest expressway network, so it’s shifting the composition of construction stimulus.

Only about 30% of projects are traditional infrastructure, such as roads and rail. More than half are geared to support the manufacturing and service industries: factories, industrial parks, technology incubators, and even theme parks.

The change in emphasis reflects Beijing’s commitment to ensuring China retains its dominant share of global manufacturing, even as it shifts into more advanced areas such as electric vehicles and batteries, renewable energy, and microchips.

One project that fits the bill is a 2.2 billion-yuan expansion of Beijing’s Zhongguancun Dongsheng Science and Technology Park to house a new generation of tech startups.

To avoid virus outbreaks, workers live in a bubble, shuttling between dormitories and the work site, and are tested weekly.

At the construction site, cranes surround a huge pit where foundations are being laid by workers in face masks and hard hats who started arriving a month ago.

The construction push is meant to ensure the central government reaches its 5.5% growth target set for the year. The main index is down 13.4% year to date, but a subindex that tracks infrastructure-related companies is off by only 4.7%.

In the longer term with this year’s major projects needing three to five years to be completed, the global effect may in fact be disinflationary as Chinese factories ramp up production of goods such as microchips, where tight supplies have raised prices.

Whether China sticks with its model of construction stimulus when the economy slows is the biggest single factor determining the path of its future emissions. Major projects approved by Beijing are exempt from the country’s energy-efficiency requirements, which can recur in environmental implications.

A chunk of new investment will be channeled into renewable energy, which would help limit the output of greenhouse gases in the longer term.

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