Abstract
China’s US$580bn stimulus plan for 2009-2010 has sparked intense debate
amongst analysts. Questions
have arisen on whether or not the majority are
re-announcements or projects that were due to take place
and have been
brought forward, or even what amount of this money will actually be dispersed
and when.
The truth is that there is no clear answer. The data coming out
of China remains convoluted and
decisively opaque, making comparisons with
the past is difficult, or even unreliable sometimes; while it
becomes ever
harder to construct a reliable picture of what this plan will entail, apart
from the general
principle that money will be spent on infrastructure
projects, with emphasis on railways.
The specifics of the plan however are
of little importance to the government. The aim of this stimulus
plan is
very clear: to maintain employment, which for the Chinese government is the
foundation of
maintaining social stability. We side with the bears in this
occasion and reiterate our concerns regarding
the desired effects of the
government spending programme and its actual potential will be muted; a
concern which we initially raised just before the plan was unveiled in late
October. Indeed, this is a most
significant amount earmarked for
infrastructure investments, which can potentially see China overtaking
Russia in having the second largest rail network in the world after the US,
possibly as soon as 2011.
Nevertheless, we do not believe that the railway
spending programme will boost the construction sector
so much as to
re-establish construction real growth to its 2003-2006 levels, when we believe
it peaked. In
BMI’s Q109 China Infrastructure Report we forecast
that the construction industry in China will grow
by 7.8% in 2009,
reaching a value of CNY 2,545bn (US$397bn). Our new extended forecasts to
2017
show a average annual real growth in the industry value between 2009
and 2017 of 5.2%, half the amount
of annual real growth between 2000 and
2008.
Our bearish outlook is in line with BMI’s macroeconomic
forecasts and the assessment of BMI’s country
risks analysts who
indeed see a boost from the multi-trillion yuan spending spree, but albeit one
that will
be short lived. Amongst the issues that are of concern, are
issues of financing, specifically how much will
come from the
Beijing’s coffers and how much will come from provincial governments, or
even rely on a
multiplier effect take place; but of more concern are
issues of time-effectiveness and channelling the
funds through to projects
and sectors, especially as corruption within the vast bureaucracy of China
remains high. Real GDP growth will rise for 2009 and 2010, but will decline
thereafter, as the current
recession takes a toll on the foundations of
the economy: consumer spending and exports, with further
risks to the
downside.
Poor labour conditions, high levels of corruption and a decrepit
legal system remain as China’s key
structural problems plaguing its
business environment. The sub-standard legal framework drags China’s
overall Business Environment score down. On the strength of its infrastructure
sector growth compared to
the region it ranks in second place in
BMI’s Infrastructure Business Environment Ranking matrix.
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