A leading Chinese economist says his country’s government’s decision to ramp up spending on infrastructure and construction projects ended a sustained growth slump and was instrumental in preventing a “hard landing” for the world’s second-largest economy.
Li Daokui, an economist with Tsinghua University and formerly an adviser to China’s central bank from 2010 to 2012, said in an interview with CNN that the Chinese economy managed to achieve a soft landing thanks to Beijing’s decision to increase stimulus spending on construction projects.
“A hard landing has already been avoided,” said Li according to transcripts from an interview with CNN’s Fareed Zakaria GPS. “I’ve been talking about this for the past two years – maybe two and half years – that is the growth rate will slow down a little bit and then pick up.”
According to Li, increased work on railroad projects and new steel factories served to bring an end to seven consecutive quarters of slowing growth, with GDP rising by 7.9 per cent in the final quarter of 2012. The Chinese government further abetted growth by means of measures to lift industrial output, retail sales and the real estate market.
Last week, China’s central government unveiled plans to allocate 120 billion yuan, equivalent to AU$18.7 billion to local governments for spending on transportation infrastructure projects in 2013. The funds are destined for the improvement of highway networks and rural roads and will be derived from vehicle purchase taxes.
The new funds for spending on transportation infrastructure add to approximately a trillion yuan in large-scale construction projects approved in the second half of 2012 as part of efforts to bolster slowing growth.
While the raft of constructionand infrastructure projects was touted by a recent Bloom berg survey of economists as helping to lift this year’s GDP growth to 8.1 per cent from 7.7 per cent last year, many observers are concerned about the debt burden incurred by profligate stimulus spending, which could pave the path to an even sharper slowdown in future.
Some economists point to exorbitant amount of bad debt in the Chinese banking sector, which could now be as high as 9 trillion yuan, and more than sufficient to erase the entire sector’s capital; as well as reluctance amongst banks to lend money to infrastructure projects approved primarily for the purpose of stimulating the economy.