Xi bets on infrastructure to boost a limping, lockdown-battered economy

Chinese leader Xí Jìnpíng 习近平 made a bold pledge (English, Chinese) to boost infrastructure spending at the Central Commission for Financial and Economic Affairs (CCFEA) meeting on Tuesday. “Infrastructure is the bedrock for economic and social development,” Xi stressed.

• Planned investment on major projects from local governments this year is at least 14.8 trillion yuan ($2.3 trillion), Bloomberg predicts.

Since March, mainland China has faced its worst outbreak of COVID-19 since the start of the pandemic in early 2020. Beijing’s COVID-zero playbook has led to strict pandemic curbs across the country that have stymied supply chains, curbed consumer spending, and sent shudders throughout the global economy.

• China’s economy was already struggling after a property slump and regulatory crackdowns on industries like gaming, education, and technology sent investors scrambling last year.
• “The meeting suggests to us that Chinese policymakers have been increasingly aware of the strong growth headwinds from COVID restrictions and continued property downturn, and thus becoming more determined to ramp up policy easing measures,” Goldman Sachs analysts noted on Wednesday.

A number of global heavyweights have slashed their forecasts for China’s economic growth in the past few months, with the predictions only getting more bleak amid the COVID lockdowns.

• The International Monetary Fund (IMF) again pared down its GDP forecast for China this year with an estimate of 4.4%, a dip from its 4.8% estimate in January and well below the 5.5% growth target set by Beijing earlier in March.

Some in the industry have also voiced concerns that the country’s continued reliance on government spending for growth is not sustainable and leaves China’s economy all the more vulnerable to a future slowdown — especially if Beijing won’t ease up on its lockdown policies.

• “As occurred in every previous case of a country that followed this growth model, there is a growing recognition that China cannot continue to rely on an infinite expansion of investment to drive growth,” finance professor Michael Pettis wrote on Twitter.

But for now, Xi’s word is gospel: The CSI 300 Index ended on Wednesday with a 2.9% gain, its biggest since March 16, while infrastructure and construction firms like China Communications Construction Co., China State Construction International, and Sany Heavy Industry Co. surged.