China may increase fixed-asset spending

Expert: Higher outlay for infrastructure creation to offset economic slowdown

China is considering the option of increasing fixed-asset spending, especially for infrastructure construction, to offset the economic slowdown due to the novel coronavirus outbreak, experts close to the matter said on Friday.

The central government's budgeted expenditure on fixed assets would be slightly higher this year, compared with the level in 2019, a plan that was made before the COVID-19 outbreak by the Ministry of Finance. "But now, the budgeted expenditure is likely to be revised," a policy adviser for the ministry, who did not wish to be named, told China Daily.

The annual quota for local government special bonds, the debt instrument used to fund infrastructure projects, could also be readjusted from an earlier version set by the ministry, the adviser said.

Newly confirmed cases of the outbreak have been on a steady decline since early this month. The central authorities have been encouraging early production resumption and boosting economic growth with a slew of supportive policies.

Since it may take a longer time to boost consumption, experts believe fixed-asset investment is the fastest and most efficient engine for an economic rebound.

"Fixed asset investment will play a more important role in supporting economic growth," said Sheng Songcheng, the former head of the statistics and analysis department of the People's Bank of China, the central bank. "Supported by a more proactive fiscal policy, infrastructure investment will rebound with robust growth rates this year."

Many regions have introduced key investment projects in fields of transportation, logistics, cross-border power grids, and environment protection, which also include high-tech programs. "According to incomplete statistics, the total investment on major projects announced by local governments is about 34 trillion yuan ($4.9 trillion), on which the investment this year is nearly 3 trillion yuan," said Sheng.

The Ministry of Finance has delivered more than 1.8 trillion yuan of this year's local government bond quota in advance. It had reduced the minimum capital proportion for some qualified infrastructure projects last year, which enabled fiscal funds to leverage more social capital and boost investment, he said.

Given the current situation, the relevant government departments must consider stronger investment in fixed assets, including infrastructure investment, and expand the budget spending of the central government, said Wang Zecai, a researcher at the Chinese Academy of Fiscal Sciences under the Ministry of Finance.

"Bonds issued by the central and local governments can be increased," said Wang, who called for higher efficiency in government spending and leveraging more private funds. He said the preset budget spending could be raised if new policies to augment capital resources are introduced.

The legal fiscal budget should be discussed and passed by the nation's legislature－the National People's Congress. The annual NPC meeting, which usually is held in Beijing in March, has been postponed due to the novel coronavirus outbreak.

The market has expected fiscal deficit to surge to 3 percent or even higher, but the Ministry of Finance declined to comment on the specific number before the NPC conference.

Media reports on Thursday said that some local governments have disclosed major infrastructure projects for this year, totaling about 25 trillion yuan. The reports sparked speculations about a possible strong stimulus package to spur economic growth.

A research note from Zhongtai Securities said that the "25 trillion yuan infrastructure plan" was a confusion over the "investment concept". "It was just a plan and does not mean real investment. The planned projects will not be finished within this year and may take many years. According to real investment data for this year, the amount has been increased, but not by that much."

Lu Ting, chief economist in China with Nomura Securities, expected Beijing to ramp up investment in infrastructure during and after the fight against the virus, but said the scale is unlikely to be massive owing to tight financial and fiscal conditions.