China has announced a trillion yuan (£99bn) of infrastructure projects in a bid to revive economic growth, raising hopes that the world’s second largest economy will drive a recovery across the globe.
Stock markets in Asia soared on the news, with the main Chinese share index up 3.7% on the day. Markets were already buoyed by the announcement of the ECB’s plan to save the euro by buying up the bonds of distressed eurozone countries in unlimited quantities.
Over the past two days, Beijing has announced plans to build highways, waterways, urban rail projects and waste water treatment plants, estimated to cost more than 1tn yuan, some 2% of China’s total economy.
The Chinese government did not describe the investments as a stimulus package, but analysts said the approvals signalled a shift in policy. Zhang Zhiwei, economist at Nomura, said: “Apart from the large sizes of the projects, the announcements were all made in two days, which is very intense. It signals a change in policy stance, which is now much more proactive.”
He said the projects were likely to begin in the coming months and the impact could be reflected in fourth quarter GDP. Chinese growth slowed to 7.6% in the second quarter, its lowest in three years, and grim economic data out in the past few weeks suggests the slowdown could be even steeper in the third quarter.
The Chinese government has been expected to act to boost growth for some time, but has been wary of reinflating a property bubble and overstimulating the economy. It is thought the leadership has also been preoccupied with the once-in-a-decade leadership change taking place later this year.
Crucially, these new projects have been signed off by the central planning agency, meaning they are likely to proceed. Local governments in China have announced around 7tn yuan worth of projects over the past two months but analysts said funding shortages would scupper the plans. Once projects have Beijing’s approval, however, funding is seen as a formality.
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