Infrastructure Stimulus Still Favoured
BMI View: We believe the latest increase in China's railway investment target indicates that fixed asset investment in infrastructure remains the government's favourite tool in stimulating economic growth. Although this increase poses an upside risk to our railway infrastructure forecasts, we maintain our stance that this growth model is unsustainable and could come at the expense of future growth in the infrastructure sector.
China's state-owned railway operator China Railway Corporation (CRC) recently announced that it had increased its spending target for 2014 to CNY800bn (USD128bn). CRC had previously said in January that around CNY630bn would be allocated as fixed asset investment into the railway sector in 2014 (cited from the China Daily), and the revisions to date represent an increase of CNY170bn.
We believe this latest revision to CRC's investment target indicates that fixed asset investment - particularly in the infrastructure sector - continues to be the government's favourite tool in stimulating economic growth. Various economic growth metrics such as trade activity, manufacturing indexes, and rail freight volumes show that China's economy is experiencing a significant slowdown ( see 'Trade Contraction Unlikely To Spur Knee-Jerk Stimulus', April 11 2014). We have seen the Chinese central government gradually increase the scale of its stimulus measures in 2014 to prevent further decelerations in economic growth ( see 'Piecemeal Stimulus Does Not Alter Core View', April 3 2014).
|Stimulus The Preferred Way|
|China - Fixed Asset Investment (FAI) Data, Railways|