[ad_1]
25 years ago, Shanghai launched its subway with a single stubby line. Since then, it has added 15 lines and some 700 km, making it the longest underground network in the world. It's far from done. The city has recently unveiled plans for an additional 300 km, including rail, in the next five years. Much of the work goes on in the adventure, machines digging tunnels under the surface. But the excavations around the city offer clues about the activity in depth.
They are part of a national campaign. The Chinese government has, according to official media, clicked on the "fast forward" button on infrastructure spending, a proven way to revive the economy. In the first quarter, China's GDP grew by 6.4% year-on-year to the last quarter of 2018, the lowest level in 10 years. It would still be extremely fast for most countries. But Chinese officials have been baffled by the possibility that this may herald the beginning of a steeper slide.
Last year, such fears were widely heard. The trade war with the United States seemed destined to become wicked. The Chinese stock market was in free fall. Entrepreneurs complained that already powerful state-owned companies were putting them out of business. A regulatory campaign to control debt levels shook the financial system, making banks much more wary of cash loans.
Thus, in mid-2018, the Chinese government changed gears. He reduced taxes on personal income and corporate profits. Authorities have ordered banks to lend more to small businesses. And the planners have restarted the infrastructure machine. For months they had refused to approve subway projects, mindful of the debt control campaign. But in July, they started again, with half a dozen cities, including Shanghai, among the beneficiaries. Excavation equipment sales, an indicator of construction, hit a quarterly high in eight years in the first three months of 2019 (see chart).
However, doubts remain about China's ability to influence the economy. Li Keqiang, the prime minister, has repeatedly vowed to put in place major stimulus measures, fearing to undermine progress made in slowing debt growth. The benefits of tax cuts have been mitigated by efforts to collect them more strictly.
At the same time, the infrastructure boom shows how far China has grown so much that its growth is facing clear limits. Its goal is to build 3,200 km of high-speed rail lines this year. It's almost as much as Spain, the country with the second largest high-speed rail network, has in total; for China, however, it is down an average of 3,600 km per year over the last five years. The government also does not need to worry about a slightly weaker economy that causes unemployment: with the decline in the labor force as the population ages, there are announcements about the economy. Job offers appear in the country's stores.
Given all the reasons for restraint, many observers were therefore surprised by the strength of credit growth this year. Total social financing, consisting mainly of bank loans and bonds, reached 8.2 billion yuan ($ 1.2 billion) in the first quarter, up 40% over the same period last year. last year, which is significantly higher than most forecasts. A quarter of the financing consists of short-term business loans. In China, this usually indicates that flexible state-owned banks are responding to the government's call to unlock credit, at the expense of borrowers' demand. Growth could rebound by the middle of the year, says Larry Hu, of Macquarie Securities.
Are the expectations of a limited stimulus too wide? It is more likely that change is timing rather than magnitude. The government seems to be ahead of its plans to support growth.
Two political calculations can help explain that. The first is the trade war with America. China appeared to be on the back foot last year when its stock market plummeted. The rally this year, fueled by the political direction for growth, has boosted China's confidence as the negotiations get under way. The second is the 70th anniversary of the Communist Party's law, on October 1, which the government will mark with a wave of festivities. He does not want them to be spoiled by reproach about the economy. Subway diggers can count on a busy summer.
[ad_2]
Source link