The Chinese government is set to expand infrastructure spending to stimulate the economy amid the growing risk of a slump as its trade war with the U.S. escalates. As Nikkei Asian Review writes in an article "China to boost railway spending by $10bn to absorb trade war impact", Beijing plans to increase spending on railway construction by nearly $10 billion from the initial budget for 2018 by expanding existing projects, including the planned railway line linking Sichuan Province and the Tibet Autonomous Region. It has also restarted approvals on subway construction in various parts of the country.
China's economy is already showing signs of a slowdown. According to government data released Tuesday, fixed-asset investment was up 5.5% in the January-July period year on year, but the growth rate was lower than the 6.0% in the January-June period and the weakest since early 1996.
Investment in railway construction served as economic stimulus that helped China recover quickly from the worldwide economic downturn in 2008. As the trade war with the U.S. could lead to a slump in steel demand, Beijing aims to support it by boosting domestic demand through expanded railway projects.
In a meeting with the National Development and Reform Commission, which leads the country's economic policy, state-owned China Railway decided to increase the 2018 railway construction budget to over 800 billion yuan ($116 billion), up 68 billion yuan, or 10%, from the initially budgeted 732 billion yuan.
According to a local railway industry official, a 100 million yuan increase in spending on high-speed railway projects typically generates 3,300 tons of demand for steel for use in bridges and rails. Based on this estimate, the latest spending boost is estimated to raise steel demand by 2 million tons, significantly more than the 1.18 million tons China exported to the U.S. in 2017. Premier Li Keqiang in late July said the country's inland infrastructure is inadequate and needs to be enhanced swiftly. He made the remark as he visited a railway construction project in Tibet.
The comment is believed to reflect a policy to support growth through aggressive fiscal measures in the second half of the year, hashed out in a late July meeting of the Political Bureau of the Communist Party Central Committee. China Railway subsequently issued an order for its subsidiaries to suggest possible areas of additional investment for each province in their jurisdictions.
The expansion is being implemented mainly by expediting projects the company originally planned to start in 2020 or later. According to a railway industry insider, there is also a proposal to prioritize expansion in projects in the provinces of Shandong and Jiangsu, where economic impact from the trade war is already being felt.
