Policymakers are doubling down on infrastructure in the second half of the year, putting more than ¥1 trillion yuan in additional funding to work as they try to revive the economy, which just recorded the weakest quarterly growth since early 2020 in the second quarter.

Tough measures implemented in line with the country’s zero-Covid policy have weakened consumption and slowed exports. Apart from small hand-outs of consumption vouchers, policymakers have been hesitant to transfer cash directly to consumers, so to jump-start domestic demand and hit the country’s annual growth target of around 5.5%, there are few other options than infrastructure investment.

Local governments already printed special-purpose bonds (SPBs) at a record pace in the first half of the year, while in June, Beijing added ¥800 billion yuan to its policy banks’ credit quota and ordered the lenders to sell ¥300 billion yuan worth of bonds under the country’s all-out infrastructure investment campaign.

However, compared with the ¥4 trillion yuan investment round the government went on between 2008 and 2009 to stimulate the economy during the global financial crisis, profitable projects are not as easy to find this time, Zhang Liao, chairman of infrastructure advisory company Shanghai Jumbo Consulting, told Caixin.

As a result, some projects are expected to benefit from the construction drive more than others.

Projects related to digital infrastructure such as 5G base stations and data centres – as well as water conservation and wind and solar power farms – are seeing strong growth thanks to policy support and increased funding, according to analysts and industry insiders. Urban gas supply projects are also expected to benefit due to much-needed upgrades to decades old pipeline networks.

All-out effort

The National Development and Reform Commission (NDRC) approved 48 fixed-asset investment projects in the first five months of this year worth a combined ¥654.2 billion yuan – equal to more than 80% of the total investment amount for the entire of 2021.

And by the end of June, local governments had nearly exceeded their annual SPB quota to fund infrastructure and public welfare projects, having issued ¥3.41 trillion yuan in new paper, or 93% of the total, according to data from the ministry of finance.

Projects that the funds are earmarked for have already been seeing an increase in investment, latest data published by the National Bureau of Statistics (NBS) show.

For example, utilities infrastructure – production and supply of electricity, heat, gas and water – saw investment growth of 15.1% year on year in the first six months of 2022, while investment in water conservation, environment and public utility management grew 10.7% year on year in the same period, according to NBS data published on Friday.