Fitch expects the Chinese government to roll out more financial support to boost infrastructure investment after this year’s special-bond issuance quota was almost filled by end-June, says Fitch Ratings.
We expect the government to give priority to use the remaining quota for special-bond issuance from previous years, which was CNY1.55 trillion as of end-June, according to Ministry of Finance, rather than bringing forward next year’s quota, as CNY1.1 trillion of policy-oriented financial tools are already planned for 2H22.
The Chinese government has said it plans for financial bonds totalling CNY300 billion to be issued by policy banks and CNY800 billion of credit facilities by policy banks to help fill the funding gap for major projects and stimulate infrastructure investment in 2H22. Fitch believes the government may take more steps beyond these to revitalise the economy after recent lockdowns to control Covid-19 outbreaks, weakness in the property market and rising unemployment.
The infrastructure investments are aimed at creating jobs for rural migrant workers and driving a recovery in consumption and employment. The central government instructed that the portion of central-government funds for work-relief programmes in major projects that are used for labour remuneration be increased to above 30% from above 15%, according to a work plan proposed by the National Development and Reform Commission (NDRC) on 13 July 2022.
Fixed-asset investment (FAI) growth decelerated to 6.1% yoy in 1H22 from 9.3% in 1Q22, while growth in infrastructure investment slowed to 7.1% in 1H22 from 8.5% in 1Q22. 1H22 special-bond issuance amounted to CNY3.41 trillion, close to reaching the quota for this year.
