Faced with lockdowns, China bets on infrastructure

(Beijing) Entire parts of the economy have been crippled by the return of COVID-19. To revive activity, China is once again investing in infrastructure, at the risk of multiplying useless projects and increasing its debt.

Posted at 6:57 am

Patrick BAERT
Media agency France

The world’s most populous country has developed its infrastructure significantly over the past few decades, most notably in the late 2000s when it came to reviving an economy weakened by the global financial crisis.

Beijing had then invested 4 trillion yuan ($783.506.4 million) in the economy, ramping up its debt in sometimes futile projects, but at the same time supporting the global economic recovery.

This time, the Chinese power has not announced a quantified plan for the development of major works, according to the minutes of a State Party meeting broadcast Tuesday evening by the New China agency.

“Xi Jinping called for comprehensive efforts to strengthen infrastructure construction,” the state news agency reported.

The current state of facilities in the world’s second-largest economy “continues to run counter to development and national security demands,” Chinese leaders acknowledged.

In particular, to “maintain domestic demand” it is necessary to invest in transport, energy and hydraulic resources.

The said meeting in turn boosted investment in waterways, ports, airports, green energy, research, IT and telecommunications.

Do it better than America

China has been facing a slowdown in its economy since the beginning of the year due to the generalization of quarantine measures in hopes of averting a strong epidemic resurgence.

Shanghai, the country’s main economic engine, has been on lockdown since early April and there is no end date in sight. Earlier, the technological metropolis of Shenzhen was also quarantined for a week.

This cessation of activity makes the country’s 5.5% growth target for 2022 increasingly hypothetical.

According to Wall Street JournalXi Jinping has instructed his government to ensure that the country’s growth this year will exceed that of the United States.

Such a move would confirm the alleged superiority of the Chinese political system over Western democracy, the Chinese number one has argued, according to the American daily.

Meanwhile, the threat of containment now hangs over Beijing. But there are also positive signs with the announcement of the lifting of the curtailment on Thursday in Changchun and Jilin, two major cities in the northeast of the country, the cradle of the auto sector.

No immediate recovery

The return of the health crisis comes on top of the recovery in the real estate and technology sectors, which has severely affected these two pillars of national growth in recent years.

In this context, “projects to accelerate infrastructure spending are political tools designed to directly increase government spending,” notes economist Rajiv Biswas of S&P Global Market Intelligence.

But they won’t revive the economy anytime soon, warns his colleague Ting Lu from the Nomura bank.

“With the lockdowns, it is even more difficult to increase investment in infrastructure because traffic is banned and there is a labor shortage” in the affected areas, he notes. †

Ultimately, the recovery through infrastructure may, at best, only “compensate for some of the decline in activity caused by the slowdown in exports, the decline in real estate and the costs of the zero-COVID-19 strategy.” estimates Nomura in an analyst note.

Xi Jinping’s announcements, however, reassured markets: After opening downward, the Shanghai Stock Exchange closed nearly 2.5% on Wednesday, while Shenzhen’s gained nearly 4%.

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