News Analysis: Strong infrastructure investment to underpin stable growth

After a satisfactory jump in the first quarter (Q1), China's infrastructure investment is set to continue to be a major economic driver during the rest of the year, especially thanks to projects to alleviate poverty.

The Chinese economy posted a better-than-forecast year-on-year increase in Q1 thanks to capital flow into infrastructure projects and property development. Infrastructure investment totaled 1.54 trillion yuan (around 235 billion U.S. dollars), up 19.6 percent year on year, data from the National Bureau of Statistics (NBS) shows.

"This growth is expected to be maintained," according to CICC analyst Liu Liu, who cited upcoming projects and huge room for infrastructure improvement.

Growth of new projects has accelerated in most parts of the country, with total planned investment up 39.5 percent year on year in the January-March period, the fastest since 2012, Liu said.

Liu expects the upward trend to continue in the second quarter as state-owned contractors have posted strong order volume since the second half of 2015. It takes around two months from the signing of a contract for construction to begin.

However, Liu predicts a deceleration in the second half due to a high base last year.

Besides, investment in urban rail transit, which has contributed substantially to growth, still offers ample potential as the length of urban rail transit lines in the country's most developed cities still lags behind large overseas cities, Liu said.

Infrastructure investment is seen as one of the most effective means for China to stabilize economic growth against looming downward pressures.

To ensure infrastructure investment continues to grow, the government may need to further raise deficit ratio, and allow private investment via more channels, including public-private partnership (PPP) and special bonds, according to a research note issued by Ping An Securities.

NBS chief Ning Jizhe, who also advocates PPP projects, said construction funds could be established to attract private investment.

The National Development and Reform Commission, the top economic planner, has said one of its priorities this year is to improve the infrastructure project system to attract investment and raise funds.

China has also started to improve infrastructure in rural areas to alleviate poverty and prop up the economy.

At a State Council executive meeting last week, the government promised to accelerate the construction and upgrading of rural roads, expressways, rails and airports over the next five years as a way to help lift underdeveloped areas out of poverty.

"Rural areas need more money to improve living conditions, such as better sewerage systems and other sanitary facilities, as well as roads and greening," said Geng Qinghai, a housing and rural-urban development official in east China's Shangdong Province.

By raising rural investment, China can find an outlet for saturated industries including steel and cement while trying to rein in a continued slowdown, analysts said. Endi