There is still room for infrastructure investment growth to fall to 4.2%

Affected by the accelerated issuance of local government special bonds and the accelerated pace of project approval, the market generally expected that the growth rate of infrastructure investment this year would pick up to near the nominal GDP growth rate. Since 2019, although the overall growth rate of infrastructure investment has increased compared with that at the end of 2018, it still shows a weak improvement, from 4.3% from January to February to 4.2% from January to October. The growth rate of infrastructure investment has not been improved. On the one hand, it is due to the weak growth of infrastructure investment in the public welfare category. The railway transportation industry, water production and supply industry are close to achieving the 13th five year plan, and the development space structure is slowing down. On the other hand, due to the more standardized local government debt, the source of capital construction funds is narrowed. Since November 2017, China has standardized the cooperation between the government and social capital (PPP).

Due to the high dependence on PPP, the investment growth rate of some public facilities industries with poor profitability, such as transportation and municipal engineering, has declined significantly. In addition, the lifelong accountability mechanism has led local governments to be more cautious about the infrastructure supported by debt, and the speed of the scale of infrastructure project approval has slowed down. At the same time, the source of capital replenishment by special bonds is relatively limited, and the expansion of the scale of special bonds is insufficient to hedge the contraction of other financing channels. In fact, under the current situation, it is reasonable and necessary to slow down the growth of infrastructure construction. Since 2008, infrastructure growth has been faster than manufacturing investment for a long time, which is difficult to sustain. China's economy needs to reshape the power of infrastructure and economic growth. In order to solve the problem of capital construction funds, we need to continue to strengthen the financing mechanism, such as establishing a long-term mechanism. In 2020, the growth rate of infrastructure investment is expected to pick up slowly, supporting the bottom and stabilizing the growth. 2020 is the end year of building a moderately prosperous society in an all-round way and achieving the goal of doubling GDP. From the perspective of policy support, the counter cyclical adjustment policy in 2020 will further increase, and the support for infrastructure investment will be strengthened.

The notice on strengthening capital management of fixed asset investment projects issued by the State Council recently lowered the capital ratio of infrastructure investment, which has become an important reform in the field of infrastructure and fixed asset investment since 2015. These measures will play a more active role in shaping new investment momentum, opening up new investment opportunities and promoting steady economic growth in the future. In addition, the fiscal policy continues to strengthen and improve efficiency. Special bonds can be used as capital funds for major projects and accelerate the approval of infrastructure projects. The monetary policy remains moderately tight, which is good for infrastructure construction in 2020. From the perspective of capital source, the support of self raised capital sources such as local government special debt, P P P, policy financial debt and mortgage supplementary loan (PSL) will be strengthened. The State Council requires that the special debt funds shall not be used in the fields related to soil storage and real estate, and the proportion used in the field of infrastructure construction is expected to increase. The drag of non-standard financing will be weakened, and PSL, which mainly invests in infrastructure, will continue to work. In addition, real estate financing is tight and manufacturing demand is still weak. Driven by policy support and actual demand, the proportion of domestic credit for infrastructure projects is expected to increase. From the perspective of demand, China's infrastructure investment has enough space to make up for the shortage, with great potential for new infrastructure, transportation infrastructure, energy, ecological environment protection, people's livelihood services, municipal and industrial parks and other infrastructure areas, as well as 5g, urban rail transit, artificial intelligence, industrial interconnection and other new infrastructure areas, which will become the focus in 2020.