August 16, 2018 / 2:45 AM / a month ago

China nearly quadruples infrastructure approvals in July as growth slows

BEIJING (Reuters) - China almost quadrupled the value of fixed-asset investment projects approved in July from the previous month as Beijing looks to accelerate infrastructure spending to stabilize the cooling economy.

China gave the green light 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.

A sweeping multi-year government crackdown on risky lending and hidden debt has sharply pushed up funding costs and slowed investments in big-ticket government infrastructure projects.

But with the economy starting to lose momentum, the government is now shifting its priorities to more immediate risks to growth.

The government will fine-tune its policies in a preemptive way to keep economic growth within a reasonable range, state radio quoted the cabinet as saying on Thursday.

Efforts will be made to ease financing difficulties facing small firms and widen access for private investment in some sectors, the cabinet was quoted as saying.

When asked by Reuters if the economy has been hurt by deleveraging measures, 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.

Beijing has also encouraged such highly indebted firms to enter into debt-to-equity swap agreements as part of the solution to reduce risks in the financial system and heaps of debt.

The NDRC 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.

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, making it tough to tell if companies have really been weaned off state life support.

PROPERTY STILL A BRIGHT SPOT

Despite a broad economic slowdown reflected in July data, China’s property market, a key growth driver, has remained a bright spot.

The housing ministry said on Thursday over 990 billion yuan ($143.63 billion) was invested in massive urban redevelopment projects in the first seven months of 2018.

But further stimulus in smaller cities could add to worries about property bubbles and rising household debt.

Moreover, while announcements of big infrastructure 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.

The stream of new stimulus measures and easier credit conditions have raised fears that Beijing is putting debt reduction efforts on the back burner again.

But economists at Nomura believe the country’s policymakers are applying stimulus more cautiously and selectively than in past downturns, keeping much higher debt levels in mind.

Beijing 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.

Reporting by Yawen Chen and Beijing Monitoring Desk; Additional Reporting by Kevin Yao; Writing by Stella Qiu; Editing by Sam Holmes and Kim Coghill

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