As growth in sales and investment of real estate sector slows down, economic downturn faces greater pressure. Experts predict that in the second half of this year, the year-on-year growth of fixed-asset investment will be less than 10 percent, keeping stable with a slight decline; the growth rate of real estate investment will hike first and then drop; and economic growth is likely to fall a little season by season. Under this circumstance, investment in public-private partnership (PPP)-based projects still plays an important role in driving infrastructure construction. Proactive fiscal policy will be more detailed to improve utilization efficiency of financial fund, and fiscal expenditure in some areas should be maintained while in others cuts should be made.
Growth of fixed-asset investment predicted to slow down
According to statistics from the National Bureau of Statistics (NBS), the year-on-year growth of fixed-asset investment recorded 8.6 percent during January and May, down by 0.3 percentage points when compared with that during January and April. During January and May, private investment, infrastructure investment and real estate investment all dropped by 0.1 percentage point, 2.4 percentage points and 0.5 percentage points when compared with those during January and April.
According to the National Development and Reform Commission (NDRC), it has reviewed and approved 12 infrastructure construction projects with total investment amount of 148.067 billion yuan since this year. The number of projects approved by the NDRC began to decrease since last September. Railway fixed-asset investment grew by 2.5 percent year on year during January-May period, hitting a new low in the same period of last four years.
“The economic growth is very likely to slow down a little in the second half of the year and the downward pressure mainly results from slowdown in investment growth.” Lian Ping, chief economist with Bank of Communications, indicated that growth of investment in real estate development will drop significantly in the second half of the year as relevant indicators such as sales of commercial houses, land transaction, starts of construction and capital source become weakened. Meanwhile, strengthening management over local financing platforms and forbidding local governments from borrowing loans illegally via PPP projects and various investment funds provided by governments will influence financing ability of local governments. Growth rate of investment in infrastructure construction, which pushed up fixed-asset investment in the first quarter, will slow down in the second quarter.
In the opinion of Industrial Securities, capitals for investment in infrastructure construction mainly come from general financial budget, governmental funds, government bond, loans and social capitals. The state budgetary appropriation and governmental fund contributed about 30 percent to the capital for investment in infrastructure construction. But growth rate of general fiscal revenues and income from governmental funds was much higher than that in the same period of last year. Government bond accounted for about 35 percent among the capital for infrastructure construction. But as net issuance of urban investment bond was negative since this year due to high interest rate, capitals from government bonds for infrastructure construction may be restricted. Among the fiscal expenditure, year-on-year growth of spending in agriculture, forestry, water-related affairs, transportation and resource exploration, which was related with infrastructure construction, climbed and was higher than that in 2016. In short, the decline in investment in infrastructure construction will be controllable this year.
Investment in infrastructure construction relies on PPP projects
Investment in PPP-based projects still plays an important role in driving infrastructure construction.
Minsheng Securities thought that this year will be significant to the development of PPP projects. Relevant policies will be tightened and the number of projects to be implemented will reach a peak this year.
According to statistics, the number of new PPP projects put in library has slowed down since the second half of last year and more projects were put in place previously. 35.14 percent of PPP projects have been implemented as of April. According to data from comprehensive information platform about PPP projects of the Ministry of Finance, investment amount of the new PPP projects to be implemented in 2017 is 2.33 trillion yuan and the figure will reach 4.56 trillion yuan by the end of this year. The contribution ratio of investment in PPP projects to driving infrastructure construction will be 6.11 percentage points this year, which was 2.27 percentage points last year. Investment amount in infrastructure construction driven by PPP projects is 0.929 trillion yuan, and the number of infrastructure construction projects is about 75 percent of that of PPP projects.
PPP is expected to bring a climax to investment in infrastructure construction to reshape industrial pattern, according to China Investment Securities. For example, water ecological governance is the core force of pushing the performance of companies engaged in ecological environmental protection projects to grow. These companies’ performance will be mainly boosted by construction of sponge city and governance of black and odorous water body and rural sewage. The market size will reach 1.16 trillion yuan. Construction of Xiong’an New Area will push forward construction companies. Investment in new infrastructure construction, housing construction and water ecological management will amount to 1 trillion yuan, 1.6 trillion yuan and 150.5 billion yuan respectively. Special town is expected to be a new trend for the business development of construction companies and will bring investment of about 5-6 trillion yuan. After new regulations on asset securitization of PPP projects were introduced, social capital withdrawal mechanism is improved and liquidity of PPP project is expected to be enhanced.
Lian Ping pointed out that under the premise with limited investment fund, review and management over PPP projects should be intensified so as to ensure capitals to be transparently and smoothly invested in infrastructure and public service projects and to improve implementation rate of PPP projects.
Make better use of financial fund
AJ Securities forecasts that the year-on-year growth of fixed-asset investment will be less than 10 percent or maybe will dive to around 8 percent in the second half of the year, keeping stable with a slight decline. The GDP growth will move down in the second half. Therefore, it is necessary to take more aggressive fiscal policies to stabilize economic growth.
Lian Ping viewed that it is not necessary to fear that the economic growth will stall. Economy will maintain stable increase in the second half. Avoiding economic hard landing is still the base line of macro-control policy. It is expected that GDP growth with 6.9 percent in the first quarter will be the highest in this year and the economic growth will slow down gradually season by season. But it will keep at above 6.5 percent and may reach 6.7 percent for the whole year. It is predicted to be 6.8 percent, 6.7 percent and 6.6 percent in the second, the third and the fourth quarter respectively. Regarding fiscal expenditure, proactive fiscal policy provides more supports in the first half than that in the second half of the year. After the second quarter, owing to economic slowdown and policy of reducing tax and fees, growth of fiscal revenues will slow month by month, which will gradually affect the fiscal support. Under this circumstance, proactive fiscal policy will be more detailed to improve utilization efficiency of financial fund. It should continue to reinforce support to development of major projects and give play to policy’s role of stabilizing economic growth.
Translated by Vanessa Chen
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