China to invest more in infrastructure

China’s government has ordered part of the state banks to issue new securities, which are intended for investment in infrastructure, reports Financial times, citing Chinese state media. This is another attempt by the authorities to combat the slowdown in the second largest economy in the world, the newspaper notes.

The combination of a month-long collapse of the capital markets and the weak performance of industrial production seem nervous Beijing. The decision about the new aggressive injection of money into the real economy comes after the beginning of the week the index of managerial orders (PMI) showed that the manufacturing sector in the country has shrunk more than estimates.

Infrastructure investment

The total estimated value of the new bonds is 1 trillion. yuan, or about 160 billion. US dollars, reported newspaper Economic Information Daily, which is published by the official news agency Xinhua. The first issue worth 300 billion. Will be made soon by specialized state banks were recapitalised in the spring. The funds raised will be invested in construction of housing, pipelines and other infrastructure projects.

This move fits in the central bank’s efforts to develop more targeted measures to stimulate the economy amid capital flight from the country. This marks a change of policy towards Beijing direct support of infrastructure investment by the central government. After the 2008 crisis, China also rely on infrastructure investment, which, however, were funded by local authorities, which led to their huge debt. Attempts by Beijing to curb the problem of the debts of local governments led to reduced costs for infrastructure, which in turn contributed to the economic slowdown.

“The model in which infrastructure investments were funded by local governments is not particularly sustainable and desirable. Beijing or should abandon the debt limit of the Regions or to fill gaps emerged,” said Andrew Batsan of Gavekal Dragonomics.

State-owned banks

In April, authorities earmarked 64 billion. Dollars for recapitalization of China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China. In July the same purpose were allocated more 109 billion. Dollars. Banks must use these funds to invest in neighboring countries as part of the “New Silk Road”. Strengthening of banks’ capital allows them to take on more debt. Most bonds issued by specialized banks, purchased from commercial banks, also controlled by the state.