BEIJING — China’s infrastructure spending plan is not comparable to the 2008 stimulus, a J.P.Morgan economist claims.
The Ministry of Transport and the National Development and Reform Commission has announced that 4.7 trillion yuan ($720 billion) will be spent on infrastructure from 2016-2018, covering 303 projects.
The decision has been misinterpreted as another large stimulus similar to that which followed the global financial crisis, but this is not the case, according to a research note by Zhu Haibin, J.P.Morgan China Chief Economist.
Zhu expects the projects to include some which are already underway and the spending is in line with existing policy rather than an additional amount.
The 13th Five-Year-Plan (FYP) contains slightly lower targets for railway and highway spending, but higher targets in city rail and airports compared to the previous FYP. Spending is still critical if policy targets are to be met, Zhu said.
With manufacturing investment is continuing to fall as capacity is reduced and real estate inventories are still high, infrastructure has become the focus of policy. It is worth noting that the concept of infrastructure has expanded in recent years to cover new areas such as city rail, pipelines, water conservancy, utilities and the environment, he said.
Furthermore, 4.7 trillion yuan today is not comparable to 4 trillion in 2008, he said. The amount today accounts for 6.9 percent of 2015 GDP or 8.5 percent of fixed investment and will be spread over three years. In 2008, the amount represented 14.9 percent of 2007 GDP and 33.8 percent of fixed investment. Total spending on infrastructure was only 2.3 trillion yuan in 2007 and is now over 11 trillion yuan.
In addition, 4 trillion is an inaccurate estimate of the 2008-09 stimulus with the actual amount much bigger, as reflected in credit growth and expansion of local government debt, Zhu added.