China nearly quadruples infrastructure approvals in July

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BEIJING (Aug 16): China almost quadrupled the value of fixed-asset investment projects approved in July as Beijing looks to accelerate infrastructure spending to boost the cooling economy.

China gave the greenlight to 17 fixed-asset investment projects in July, worth a combined 77.69 billion yuan ($11.24 billion), Zhao Chenxin, an official at the National Development and Reform Commision (NDRC), told reporters on Thursday.

That compared with approvals for 20.8 billion yuan of spending in June, Reuters calculated from official data.

Beijing is accelerating infrastructure spending and rolling out other support measures for businesses to cushion the economy as it braces for the impact of escalating U.S. trade tariffs. Data this week showed China’s investment growth has slowed to a record low and consumers are turning cautious on spending.

The NDRC also said that 1.73 trillion yuan worth of debt-to-equity swap agreements had been signed as of end-July, although only 352 billion yuan has been transacted.

Beijing has encouraged highly indebted firms to enter into such agreements as part of its sweeping, multi-year campaign to reduce risks in the financial system and a mountain of debt.

But some China watchers are now questioning whether the stream of new stimulus measures and easier credit has put Beijing’s debt reduction efforts on the back burner again.

Under debt-to-equity swap schemes, investors get equity stakes in firms and in exchange the firms are able to lower their debt burden, though the specifics of each deal are different and often complex.

When asked by Reuters if the deleveraging campaign has hurt the economy, as suggested by the weak July data, NDRC official Chen Hongwan said the twin goals of sustainable economic growth and debt reduction were not mutually exclusive.

“We can’t just simply say deleveraging is at odds with economic growth,” he said, adding that moves such as forcing “zombie” firms to close were good for the economy and healthier companies in the long run.

However, many deeply troubled companies are state owned with many employees, raising the risk of layoffs.

TRADE FALLOUT COULD TRIGGER MORE EASING

While announcements of big projects are starting to come thick and fast, analysts caution they have long lead times and they may not begin to arrest the decline in China’s economic growth until next year.

“The key headwinds were the same as before – slowing investment (especially infrastructure) and an ongoing unwind of shadow credit due to deleveraging measures,” analysts from UBS China wrote in a recent note, referring to a crackdown on riskier lending which is shutting down an important source of funds for small, private companies.

Despite the eye-catching road and rail spending, economists at Nomura believe Beijing is so far proceeding more cautiously with stimulus than in past downturns.

The government is most likely saving its policy ammunition for September and the fourth quarter, after more sweeping U.S. tariffs take effect, Nomura said in a note this week.

($1 = 6.9117 Chinese yuan)