China Sets Out $75 Billion Infrastructure Fund to Revitalize Economy

China is set to line up a state infrastructure investment fund worth 500 billion yuan ($74.69 billion) to boost infrastructure spending and revive a stagnant economy. Chinese economy has started slowly recovering from pandemic lockdowns but headwinds that slow down growth remain.

Some of those headwinds are a still subdued property market, low consumer spending and a fear of new wave of covid infections.

Beijing is expected to set up the fund in the third quarter.

China has unveiled a series of economic support measures in recent weeks to reach its 5.5% growth target for the year, but experts say it will be hard to achieve without abandoning its strict zero-Covid policy.

Beijing’s economic support so far has mostly come from its fiscal stimulus to counter the impact of Covid-19, with the central bank steadily easing liquidity conditions to lower financing costs.

Government officials now bet on an infrastructure push to revive the economy, pledging 800 billion yuan in new credit quota and 300 billion yuan in financial bonds for policy banks to fund big projects.

Meanwhile, Chinese consumers have been tightening their belts amid job losses and falling incomes and exporters face headwinds from a potentially sharp global economic downturn as major central banks tighten policy to fight soaring inflation. The Ukraine war, high raw material costs and supply chain problems also pose risks to the outlook.

Good news for China is its inflation is largely under control, so it provides room for the government to stimulate the economy. Still, global cost-push factors could start impacting domestic prices later in the year.

Beijing’s push for big infrastructure projects is a viable one, but it may not be enough as property spending is still weakening.

Beijing’s new targets in infrastructure will be 5G, artificial intelligence and data, as returns on traditional projects like highways, railways and airports are now much lower.

To meet the full-year target of 5.5%, China must reach 7-8% of economic growth in the second half of 2022, which is 3-4 percentage points higher than the growth rate in the third and fourth quarters of last year.

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