China’s President Xi Jinping has announced a massive new infrastructure investment to combat further declines in the country’s economic growth, Bloomberg News reports. The total lockdown of Shanghai due to a COVID outbreak and fears of similar action in Beijing have contributed to a declining Yuan and CSI 300 stock index, and Xi’s announcement had the hoped-for immediate effect of spurring a bounce back to both. Prior to the announcement, China already had a $2.3 trillion infrastructure investment in the works.
Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. said Xi’s pledge was akin to the 4 trillion-yuan ($611 billion) rescue package during the global financial crisis in 2009 under President Hu Jintao.
Even though the current push will be “modernized” with a focus on digital and green sectors, “both involve borrowing and front-load the future,” he said. “Credit expansion is unavoidable,” he added.
China has been down this road before, using public investment to spur economic growth, which has led to so-called “ghost cities” and a struggling real-estate development industry. Regulators recently ordered state-owned asset managers and nearly 20 banks to step up and help developers pay their many bills.