China has given the green light for 60 infrastructure projects worth more than $150 billion as it looks to energise an economy mired in its worst slowdown in three years, fuelling hopes the world's growth engine may get a lift from the fourth quarter. Shares and steel futures contract prices jumped on the plans to build highways, ports and airport runways which are among the most ambitious unveiled in China this year.
The move signals the government's growing intent to bolster economic growth as the country's once-a-decade leadership change looms, analysts said. China's powerful economic planning body, the National Development and Reform Commission, announced approvals for projects that analysts estimate total more than 1 trillion yuan ($157 billion), roughly a quarter of the total size of the massive stimulus package unleashed in response to the global financial crisis in 2008.
The announcement comes just before a deluge of Chinese economic data due on Sunday that could confirm investors' worst fears that a downswing in the world's second-biggest economy has stretched into a seventh straight quarter. "Apart from the large sizes of the projects, the announcements for these new projects were all made in two days, which is very intense," said Zhang Zhiwei, an economist at Nomura in Hong Kong.
China's economy may be boosted by the increased spending in the last quarter of 2012. Crucially, the projects are endorsed by Beijing and are likely to proceed. This is in contrast to pledges from nearly a dozen local governments in the last two months to spend around 7 trillion yuan to pump prime the economy, plans that economists say will not materialise due to funding shortages.
China steel futures jumped and its stock market rallied by the most in eight months on the news. Investment is a mainstay of China's economic prowess, accounting for 54.2 percent of the country's 9.3 percent expansion in its economy last year. To avert a prolonged recession, Beijing launched a 4 trillion yuan ($630 billion) stimulus in 2008/09. But the experience saddled the world's No 2 economy with a pile of bad debt, forcing China to proceed with care on spending this time.
China has not unveiled any large-scale new government stimulus this year, despite mounting evidence the economy needs more prodding to regather momentum, as policymakers fret that a surge in prices could stoke social unrest at a politically sensitive time. Instead, most spending increases are a result of fast-tracking infrastructure projects that are already in the pipeline.
Analysts have also urged caution. Ratings agency Standard & Poor's said last month that China could afford to deliver fiscal stimulus, but risked making bad investments. Still, pressure is building on Beijing to do more. Analysts say China must act soon if it wishes to cut interest rates as inflation looks set to rebound on soaring global grain prices. Worse, local pork prices have started rising too.
Gathering price pressures come even as China's economic downturn deepens, forcing Beijing into a policy quandary: hold its fire on monetary policy and risk a sharper cooldown, or lower rates and risk an inflation spike. Concentrating policymakers' minds, Sunday's data is expected to show that annual factory output growth was the weakest in more then three years in August, according to a Reuters poll, while consumer inflation quickened.
Analysts have steadily cut their 2012 GDP growth forecasts to converge with Beijing's target of 7.5 percent, which would be the worst in at least 13 years. Predictions for a recovery have also been pushed out from the first quarter to the fourth. For 2012, Goldman Sachs reduced its GDP forecast to 7.6 percent from 7.9 percent. Its forecast for 2013 GDP growth was also trimmed to 8 percent from 8.5 percent earlier.
The last time China stepped up project approvals was in May, when the Chinese media reported Beijing as saying it may bring forward 2013 investments to support the economy. The total size of investment brought forward in May was not available. Among projects approved is an expansion of a 172-km (107 miles) rail track across three provinces between Gantang and Wuwei, in western China, for 3.77 billion yuan. The project got the go-ahead in June.
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