Exclusive: China plans $75 billion infrastructure fund to revive economy

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Construction workers stand on scaffolding in front of high voltage power lines in Shanghai September 25, 2013. REUTER/Aly Song

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BEIJING, July 5 (Reuters) – China will set up a public infrastructure investment fund worth 500 billion yuan ($74.69 billion) to boost infrastructure spending and kick-start a declining economy, two people with knowledge of the matter told Reuters on Tuesday.

The Chinese economy has begun a slow recovery from supply shocks caused by widespread shutdowns since the second quarter, although headwinds to growth persist, including from a still sluggish property market, weak consumer spending and the fear of recurring waves of infections.

The fund is expected to be set up in the third quarter, the sources said without providing further details.

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The Ministry of Finance and the National Development and Reform Commission did not immediately respond to Reuters requests for comment.

China has unveiled a series of economic support measures in recent weeks, although analysts say the official gross domestic product target of around 5.5% for this year will be difficult to achieve without abandoning its strict zero strategy. COVID. Read more

Much of the support for the world’s second-largest economy has come from fiscal stimulus to counter the impact of COVID-19 this year, with the central bank steadily easing liquidity conditions to reduce funding costs.

Authorities are stepping up infrastructure efforts, dusting off an old playbook to revive the economy, pledging 800 billion yuan in new credit quota and 300 billion yuan in financial bonds to political banks to finance large projects.

Chinese consumers are tightening their belts in the face of job losses and falling incomes, while exporters face headwinds from a potentially brutal global economic slowdown as major central banks tighten policy to combat the surge in inflation. The war in Ukraine, high commodity costs and supply chain issues also pose risks to the outlook, analysts said.

For now, consumer price inflation in China is largely under control, giving authorities room to stimulate the economy, although some analysts are warning that global cost-push factors could start to weaken. appear in domestic prices later in the year.

Funneling more money into expensive infrastructure projects is Beijing’s most viable move, but it may not be enough to fill the void as property spending weakens.

With returns from traditional projects such as highways, railways and airports now much lower, China has been trying to develop new infrastructure focused on 5G, artificial intelligence and data.

FUNDING GAPS

Sources told Reuters that China will issue an advance 2023 quota for local government special bonds in the fourth quarter, with the new quota likely to exceed 1.46 trillion yuan for 2022.

The cabinet asked local governments to ensure that 3.45 trillion yuan of infrastructure special bond issues – part of the 2022 special bond quota of 3.65 trillion yuan – are completed by the end. June.

Some government advisers have called for special treasury bills to be issued later this year to fund big projects.

Wang Yiming, the central bank’s policy adviser, told a forum in late June that China was facing great difficulties in meeting the growth target and suggested it should consider increasing the budget deficit or issue special treasury bills.

To meet the annual target, China needs to achieve 7-8 percent economic growth in the second half of 2022, 3-4 percentage points higher than the growth rate in the third and fourth quarters of last year, it said. Mr Wang.

He expects China’s economy to grow about 1% in the second quarter year-on-year, slowing sharply from the 4.8% pace in the first quarter.

In a report on Monday, Citi analysts estimated a budget deficit of 1-2 trillion yuan this year, but the odds of issuing special bonds could dwindle as the government resorts to semi-fiscal financing, for example. example via political banks.

“We believe that special CGBs (Chinese government bonds) are still on the table, but the odds have diminished,” they said.

($1 = 6.6939 Chinese yuan renminbi)

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Reporting by Xiangming Hou and Kevin Yao; Written by Stella Qiu; Editing by Christopher Cushing & Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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