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China's president says infrastructure development key to recovery

SAMAA | - Posted: Sep 8, 2012 | Last Updated: 8 years ago
Posted: Sep 8, 2012 | Last Updated: 8 years ago
China's president says infrastructure development key to recovery

VLADIVOSTOK/SHANGHAI: Chinese President Hu Jintao urged Asia-Pacific nations on Saturday to speed up infrastructure development to help face the “grave challenges” from the global economy, in comments that follow Beijing's unveiling of $157 billion in such projects.The remarks at the annual Asia Pacific Economic Cooperation (APEC) summit lent further weight to what analysts see as an increasingly vocal commitment from Beijing to stimulate the economy by leaning heavily on the construction of railroads, ports and other infrastructure.China's economic planning body, the National Development and Reform Commission (NDRC), has approved 60 infrastructure projects worth more than $150 billion. The news boosted asset prices from steel futures to stocks, especially of companies related to construction.”To strengthen infrastructure development is key to promoting recovery and achieving sustained and stable growth,” Hu told an APEC business leaders' conference in Vladivostok, Russia.”Governments should play an important role in infrastructure building and step up financial support for infrastructure development,” he added, pledging later to “increase input in infrastructure development and social services” in China.Although the value of the projects is much smaller compared with China's mammoth stimulus package during the global financial crisis, analysts said they may feed through to the economy by the fourth quarter of 2012 to arrest a consistent slide in GDP growth since the beginning of 2011.Still, there were some doubts about whether or not the infrastructure projects approved by the NDRC are new. The official Xinhua news agency reported that many had been approved before.Major infrastructure project approvals were scarce in 2011 while the government was busy tightening policy, so approvals for 2012 may appear big on a relative basis.But the enthusiastic market reaction suggested that investors had been unaware of the scale of the infrastructure drive.China steel futures jumped and Chinese stocks rallied by the most in eight months on the news. U.S. heavy equipment and steel makers also got a boost. <IRONORE/>.HKAnalysts have steadily cut their 2012 GDP growth forecasts to converge with Beijing's target of 7.5 percent, which would be the weakest in at least 13 years. Predictions for a recovery have also been pushed out from the first quarter of 2012 to the fourth quarter.In Vladivostok, Hu said the economy was still “facing notable downward pressure” and in the world economy “there are still some destabilising factors and uncertainties.”We will work to maintain the balance between keeping steady and robust growth, adjusting the economic structure and managing inflation expectations.”Chinese economic data scheduled for release on Sunday and Monday is expected to back the view that growth in the world's second-biggest economy is still slowing down.STILL STIMULUSAnalysts at Bank of America Merrill Lynch saw China's infrastructure approvals as part of a two-pronged effort to “arrest slowdown”, the second part of which was land sales.”We believe this new approach of policy stimulus is in the right direction because adding home supply and improving urban infrastructure are the two best ways to contain home prices, speed up urbanisation and increase social welfare,” economists Ting Lu and Larry Hu wrote in a research note on Friday.The scale of the infrastructure development was not as large as China's 4 trillion yuan stimulus in the wake of the global financial meltdown, but Jin Liqun, chairman of the supervisory board of the China Investment Corp (CIC), the country's $480 billion sovereign wealth fund, said it would help.”This is not repetition of the stimulus package in 2008-09, but still it's stimulus,” he told Reuters on the sidelines of an international sovereign wealth fund meeting in Mexico City.In Vladivostok, businesses applauded Hu's remarks.”It's very good news,” said Richard Lavin, who oversees China operations for Caterpillar (CAT.N), which had begun exporting machinery it made in China to offset the country's slowdown.”To have President Hu … talking about infrastructure and the role it plays in ongoing stable economic development … I thought that was really exciting,” Lavin told Reuters.Scott Price, CEO and president of Walmart Asia, said despite the slowdown China was an “enormous upside opportunity for growth”.”When a car stops going at 100 miles an hour and only goes 69, it's still going pretty fast. A Chinese economy growing at 7.5 percent is still a very attractive market. There are, in our minds, massive territories of under-served customers,” he said.So far, little has been said by the government about how the projects will be funded.An executive at one large Chinese bank said it would participate in the stimulus programme, saying his bank's pricing power was stronger in the infrastructure sector than in industries that are suffering from over capacity.Economists Lu and Hu, with Bank of America Merrill Lynch, said they suspected the majority of the funding would be from bank lending.”We should focus on credit growth instead of government announcement for forecasting economic impact,” they wrote. AGENCIES

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