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The true story behind China’s mega stimulus surge

The true story behind China’s mega stimulus surge

China’s announcement of a five trillion renminbi stimulus to aid infrastructure and transportation is an indication of how the country’s government is openly worried about economic growth, according to Dr Linda Yueh.

Speaking at Citywire Montreux 2016, the author and adviser to several major institutions, including the World Bank, said the fiscal boost announced on May 11 could give investors in China more cause for concern.

‘We heard that China is going to spend almost five trillion renminbi on infrastructure investment over the next three years. That is 6.9% of GDP, in absolute size it is bigger than the stimulus after the 2008 financial crisis.’

‘For the Chinese government to be pumping back money into the economy tells you a lot about their concerns about their growth slowdown,’ Yueh said at the event for fund selectors and investment professionals.

She gave the example of how towns with millions of people living in them lacked roads to other towns in the area. Cars are forced to drive on dirt tracks until they reach the outskirts of the next large town, where similar road projects have been begun but stopped mid-way through.

‘Local government spending means that roads are not joined up, so of course 303 projects for infrastructure is needed in China. You want more infrastructure spending in a country which still need urbanizing,’ Yeuh said.

She contrasted China’s announcement with statistics showing the US will have a deficit of $1.4 trillion for its infrastructure spending by 2020. Yueh added, while the US needed less spending on infrastructure as it was already urbanised, the shortfall was still problematic for the country.

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