China has launched a US$120 billion credit line for infrastructure projects, state media reported, as Beijing tries to jump-start its ailing economy, which has been pounded by the country’s “zero COVID-19” measures.
Chinese Premier Li Keqiang (李克強) last week called for “reasonable” expansion in the second quarter as fears mount for the vaunted official annual growth target of about 5.5 percent.
Pump priming hard-hit provinces with infrastructure schemes has emerged as a key tool to create jobs and drive growth in local economies flatlined by the virus and a concurrent collapse in receipts from land sales to developers.
Photo: Reuters
A Chinese State Council meeting chaired by Li on Wednesday approved a mammoth new sum for infrastructure.
“It is necessary to increase the credit line of policy banks by 800 billion yuan [US$119.8 billion],” China Central Television reported.
“We think the three key ingredients for investment — projects, financing and incentive — are all falling into place this year,” Standard Chartered PLC chief economist for Greater China and North Asia Ding Shuang (丁爽) said. “The additional 800 billion yuan loans from policy banks will help fill the financing gap if any.”
Standard Chartered forecast infrastructure investment would grow 10 to 15 percent this year, although that might still not be enough to offset the headwinds to economic growth.
Nomura Holdings Ltd estimated that the Chinese government has a 6 trillion yuan funding gap this year, created in part by a sharp contraction in revenue from land sales, a key source of funding of infrastructure investment by local governments.
The 800 billion yuan funding announced by the State Council accounts for nearly half of the 1.65 trillion yuan in new policy bank lending last year, economists led by Lu Ting (陸挺) wrote in a note.
The State Council in its latest announcement did not say how the policy banks would fund the lending.
The development banks’ main source of funds come from issuing bonds or loans from the Chinese central bank.
Additional reporting by Bloomberg
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