News Analysis: Investment-heavy approach expected to help China meet targets

With the end of 2015 only three months away, investment-heavy government efforts are likely to ensure China to meet the year's development targets.

The National Development and Reform Commission (NDRC), China's top economic planning agency, on Monday introduced eight measures to "comprehensively promote economic growth."

While some measures are no more than a reiteration of old themes such as streamlining government administration, promoting urbanization and deepening financial reforms, others are more concrete, such as increased state investment and construction funding.

State investment worth 477.6 billion yuan (75 billion U.S. dollars) for 2015, up 4 percent from 2014, had been allocated by the end of June. The NDRC said increased investment, financed by the central budget, will be allocated to local levels within the next two weeks. It did not specify how much the amount would be.

Though the authorities are trying to steer the country away from a growth model that relies heavily on investment and credit expansion to a sustainable one driven by consumption and innovation, the transition has been far from smooth.

With a cooling domestic property market and falling external demand amid a tepid global recovery, China's economy has hit a soft patch, growing only 7 percent in the first six months, the slowest pace in nearly a quarter of a century and a far cry from the double-digit expansion in previous decades.

The government is also trying to live up to its promise of achieving "a moderately prosperous society in all respects" by the centennial anniversary of the founding of the CPC in 2021. A tough goal to achieve indeed, given the strong downward pressure on the economy and the country's diminishing demographic dividends.

Infrastructure investment has assumed the role of "stabilizer" in times of strong headwinds and uncertainty, the NDRC said.

In the first eight months, investment in infrastructure rose 18.4 percent year on year, contributing 27.7 percent of overall investment growth, 5.7 percentage points higher than the same period last year.

Infrastructure investment is the only type among the three major investment areas -- the other two being manufacturing and real-estate development -- with higher contributions in the Jan.-Aug. period.

"It's not realistic for China to jump from one model to another. China must be patient and stay focused as it tries to give up investment models and encourage innovation and entrepreneurship," said Arancha Gonzalez, executive director of the International Trade Center, a joint agency of the World Trade Organization and the United Nations, at the Summer Davos forum held in northeast China's Dalian last week.

On Sept. 1, China set up a development fund worth 60 billion yuan with an eye to nurture small and medium-sized enterprises (SMEs).

In his Summer Davos speech, Premier Li Keqiang hailed innovation and entrepreneurship as China's "hope and future."

"There is no 'magic button' to solve the problem of nurturing SMEs. The government must act with a clear sense of direction and determination to manage 'a board of multiple buttons' to empower SMEs for inclusive growth," Gonzalez said.

While the 10.8-percent rise in retail sales in August may be one positive surprise in data released Sunday, China still faces an uphill battle to convince its citizens to spend instead of save and to make consumption a key growth driver.

The NDRC said it is planning a second round of construction funds, the amount unknown, which is expected to hit the market at the end of the month.

The government raises money for the construction fund by issuing bonds. Banks and local resources were enthusiastic about participating in projects related to the first round of funding, reported to be worth 300 billion yuan, the NDRC said.

"We believe infrastructure investment will have to grow by 20 percent or more (instead of our previously anticipated 18 percent to 20 percent) in 2015, in order to cushion the larger headwinds from the property downturn," said UBS in a research note.

The official growth target for 2015 is around 7 percent. Endi