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The slowdown in infrastructure investment has limited impact on economic growth.

2018-05-16


Data show that in the first four months of this year, my country's fixed asset investment continued to decline to 7%, a drop of 0.2 percentage points from 2017. Among them, the significant slowdown in infrastructure investment is the main force driving the decline in investment. In January-April, infrastructure investment grew 12.4 percent year-on-year, down 6.6 percentage points from 2017. At the same time, the regional differences in infrastructure performance are obvious. Tibet and Hainan are provinces with faster infrastructure growth, while infrastructure investment in Tianjin, Inner Mongolia, Xinjiang and other provinces with heavier local debt risks has dropped significantly.

Data show that in the first four months of this year, my country's fixed asset investment continued to decline to 7%, a drop of 0.2 percentage points from 2017. Among them, the significant slowdown in infrastructure investment is the main force driving the decline in investment. In January-April, infrastructure investment grew 12.4 percent year-on-year, down 6.6 percentage points from 2017. At the same time, the regional differences in infrastructure performance are obvious. Tibet and Hainan are provinces with faster infrastructure growth, while infrastructure investment in Tianjin, Inner Mongolia, Xinjiang and other provinces with heavier local debt risks has dropped significantly.

In my view, the current decline in infrastructure investment is not difficult to understand, mainly related to the dilution of GDP incentives, fiscal constraints increased. However, the negative impact of the slowdown in infrastructure investment on the economy can be mitigated through regional key strategies. For example, with the acceleration of the Beijing-Tianjin-Hebei strategy and the Hainan Free Trade Zone strategy, it is expected that Xiong'an and Hainan will become the new stage of investment growth. Pole, 2018 may become a year of intensified regional differentiation in infrastructure investment.

Reasons behind the fall in investment

Although deleveraging and strong regulation are advancing, in my view, the most important factor leading to the fall in infrastructure investment is the strengthening of fiscal constraints over the same period. The decline in investment in 2018 was mainly reflected in the sharp drop in non-private investment, which is highly related to infrastructure. From January to April, the non-private investment part fell to 4.8, which was far lower than the 7% growth rate of fixed asset investment in the same period. However, private investment benefited from the enhancement of the internal driving force of the economy, reaching 8.4 from January to April, indicating that monetary policy is not the main cause of the decline in infrastructure. After all, compared with non-private investment, private investment should have been more negatively affected in the context of capital constraints, including the difficulty in obtaining loan resources and the need to bear higher capital costs.

In terms of provinces, the three provinces and cities with a large decline in fixed asset investment in the first quarter were Tianjin, Inner Mongolia and Xinjiang. In the first quarter of this year, investment growth in the three provinces was -25.6 percent, -26.2 percent and -30.3 percent, respectively, down 26.1, 33.4 and 50.3 percentage points from 2017 as a whole, while all of these provinces and cities face severe fiscal constraints.

Since the beginning of this year, the above-mentioned regional data squeeze water can be described as "one after another". Generally speaking, after the data "moisture" is eliminated, the investment data tends to decline sharply. Looking at the essence through the phenomenon, various local governments have changed from "false report" to "squeezing water". The profound difference behind it lies in the change of cadre assessment mechanism. Compared with the previous GDP-only theory, that is, GDP as an important indicator to measure the performance of local officials, the current weakening of GDP assessment, the importance of debt risk, environmental protection, people's livelihood and other variables, so that local governments pay more attention to the control of debt risk, pay attention to the change of growth from speed to quality.

Further, not only has the incentive mechanism changed, but debt accountability has led to a complete reversal of the situation. Among the six provinces and cities where local government debt issuance grew at a rate of more than 10 percent in 2017, Xinjiang and Tianjin grew faster, reaching 19 percent and 18 percent, respectively. In 2018, Xinjiang took the lead in suspending government projects, requiring PPP projects to be suspended across the board. For construction projects that have already carried out preliminary work, any source of funds that cannot be implemented shall not be reported.

Of course, with deleveraging and debt tightening, multiple sources of infrastructure investment have narrowed in 2018. For example, PSL, as a low-cost source of funds for local construction, has seen a decline in growth since 2018. Since the end of 2017, the Ministry of Finance has issued several documents on the regulation of local financing and PPP business, and has required financial institutions to comprehensively regulate the investment and financing behavior of local governments. It has set a ban on cooperation between financial enterprises and local governments with four "no's.

New Stage Investment Highlights

In view of the above measures, the author believes that this year's infrastructure investment may continue the downward trend since the first quarter, especially for some provinces with excessive debt risks, the decline will be more significant. Of course, for infrastructure investment will stall, or even drag down the annual economic growth? The author believes that the outlook is not so pessimistic. Compared with the decline in some provinces, there are still bright spots in regional investment this year, especially the accelerated construction of Hainan Free Trade Zone and Xiongan New area, or to a large extent offset the risk of rapid decline in investment.

It can be seen that in the first quarter of 2018, Hainan's investment increased by 25.3, which was significantly higher than the 10.1 in 2017, and was outstanding among all provinces. Hainan will build a pilot zone for deepening reform and opening up, a national ecological civilization pilot zone, an international tourism consumption center, and a major national strategic service guarantee zone. This is a very high requirement for Hainan, which has a low level of economic development and infrastructure construction. Infrastructure investment in Hainan, such as ports, highways, bridges, waterways and airports, will have a rapid development momentum.

In addition, the "Hebei Xiong'an New District Planning Outline" was released on April 21. The outline points out that by 2035, a high-level socialism with green and low-carbon, information intelligence, livability and industry, strong competitiveness and influence, and harmonious symbiosis between man and nature will be basically built.modernthe city. In the author's opinion, the implementation of ambitious plans will surely drive the rapid growth of many investments in environmental protection, infrastructure, rail transit, etc., or become an important pole to drive regional investment in the next ten years.

At the same time, from the perspective of the troika driving the economy this year, investment has declined, but consumption is relatively stable and trade is active, which is an important support for hedging economic downside risks. Among them, in terms of consumption, the total retail sales of consumer goods in China increased by 9.4 year-on-year in April, which was lower than expected, mainly related to the decline in real estate-related consumption such as furniture and home appliances in the same period. Automobile consumption is relatively stable. Looking to the future, along with real estateSales, the continued slowdown in start-up data, related consumption will still be constrained. But on the whole, taking into account the expansion of domestic demand and the promotion of tax cuts, the consumption environment and personal disposable income will be supported, and the overall consumption will remain moderate.

In terms of trade, although external factors have increased the uncertainty of exports this year, the trade data from January to April are still optimistic. In US dollars, the cumulative growth rate of China's imports and exports from January to April was 16.5, 5.1 percentage points higher than that of last year. The cumulative growth rate of exports and imports reached 13.7 and 19.6 respectively, 5.8 and 3.5 percentage points higher than that of last year, this means that the current overseas economic recovery and the global trade environment have not changed significantly.

Among them, thanks to the better-than-expected performance of the U.S. economy since the beginning of the year, China's exports to the U.S. grew by 13.9 percent from January to April, exceeding the average growth rate of 13.7 percent; exports to Europe remained relatively stable, with China's exports to the EU growing by 12.9 percent from January to April, while European trade data show that the decline in export growth in the first quarter of this year is mainly reflected in the euro-denominated performance, related to the appreciation, the growth rate of exports denominated in US dollars has remained at the highest level since 2012, indicating that the positive trend of exports to Europe has not been reversed. Imports and exports to relevant countries along the "Belt and Road" still maintain a relatively high growth rate, which is the bright spot that is currently driving the improvement of China's trade.

Investment will remain on the downside overall in 2018, not only in infrastructure investment, but also in real estate investment. Although investment in real estate development in January-April was 3059.2 billion yuan, up 10.3 in nominal terms year-on-year. However, considering that the overall tone of real estate "only live, not speculate" continues, the real estate market is overheated, regional control measures continue to upgrade, real estate forward-looking indicators have fallen, it is expected that real estate investment will still face downward pressure in the future.

Therefore, the author believes that with the strengthening of debt constraints and the continued deepening of deleveraging, infrastructure investment is likely to maintain a downward trend. It can be seen that in view of the changes in the GDP assessment mechanism, since 2018, more and more provinces have reduced or abandoned their fixed asset investment targets. Of course, concerns about whether infrastructure investment will stall or even cause a significant negative drag on growth are not necessary. In the author's opinion, with the acceleration of the Beijing-Tianjin-Hebei strategy and the Hainan Free Trade Zone strategy, it is expected that in the next five to ten years, Xiongan and Hainan will become the highlights of the new stage of investment, and 2018 may be the year when the differentiation of investment regions intensifies. The steady consumption and positive improvement in net exports will also offset the impact of the downward investment to some extent.

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