China is set to launch a new state infrastructure investment fund worth 500 billion yuan ($74.69 billion) to ramp up infrastructure spending and spur economic growth after months-long coronavirus lockdowns and supply chain constraints weighed on the world’s second-largest economy, according to Reuters.
Some analysts believe the easing of Covid-induced lockdowns and Government stimulus will help China’s equity market to sharp rebound following a strong selloff.
Reigniting Economy Growth
Even though China’s economy has seen a partial recovery in the recent period, key challenges such as the troubled property market, weaker consumer spending, and fears over new Covid-19 waves persist.
According to the Reuters report, the new $75 billion fund is expected to launch in the third quarter.
The Chinese government has introduced a fresh set of measures aimed at supporting economic growth, but some analysts believe that the country will have a hard time achieving its planned gross domestic product (GDP) goal of 5.5% this year without bringing its zero-COVID policy to an end.
China’s economy has received a major boost after its policymakers released a fiscal stimulus to weather the devastating coronavirus impact this year, while the central bank continues to alleviate liquidity conditions to reduce financing costs.
Beijing’s move to ramp up its infrastructure investments will include 800 billion yuan in new credit quota and 300 billion yuan in financial bonds.
While consumer inflation remains restrained for the moment which provides the government with more leeway to stimulate the economy, however, some analysts believe that the global cost-push factors could emerge in the second half of the year.
Doubling down on major infrastructure projects appears as the most logical move to make now, though some think that may not be enough to address the gaps created by weaker property spending.
As returns from infrastructure projects such as highways and airports continue to fade, Beijing is now attempting to tweak its infrastructure investment strategy and focus on artificial intelligence (AI), 5G, and data projects.
G7 Moves to Rival China
U.S. President Joe Biden and the rest of the G7 allies announced the Partnership for Global Infrastructure and Investment, a collaborative effort aimed at addressing the infrastructure gap in developing countries.
Under the new plan, the U.S. will contribute $200 billion to this initiative, while the rest of the G7 member countries, including Canada, France, Germany, Italy, Japan, and the United Kingdom, will bring another $400 billion by 2027.
The move represents an effort by the G7 to compete with China, the global leader for these types of projects such as its Belt and Road Initiative (BRI).
U.S. President Joe Biden said the new partnership is not “aid or charity” and added that such plans would “deliver returns for everyone, including the American people and the people of all our nations.”
The role of China’s democratic rivals represents “a chance for us to share our positive vision for the future” and for other countries to “see for themselves the concrete benefits of partnering with democracies,” Biden said.
Ursula von der Leyen, President of the European Commission, echoed Biden’s views saying that “it is up to us” to offer a positive investment stimulus to the world and show the developing countries “that they have a choice.”
The move comes as a relaunch of the first Western infrastructure fund that Biden introduced at the last year’s G7 summit in Britain.
As opposed to China’s BRI infrastructure development strategy backed by the government, the newly-proposed G7 partnership would mainly source its funding from private companies that are prepared to contribute massive investments. Because of this, the G7’s new infrastructure strategy is not guaranteed.
Even though Biden and G7 leaders did not refer to China by name, the rivalry between the world’s most populated country and the West loomed large during the latest summit.
Conclusion
China is ramping up infrastructure spending as it seeks to reaccelerate economic growth. This, as well as the easing of Covid lockdowns, will help China stocks to recover in the second half of 2022 after a major pullback that started last year.
