China Bets $1.8 Trillion of Construction Will Boost Economy

Almost all of the Chinese provincial governments that have released their budgets for this year expect to raise expenditure on significant infrastructure and building projects.

This is an increase of $1.8 trillion year over year, according to research by the news agency Bloomberg, and is intended to aid in the recovery of regional businesses after two years of pandemic restrictions.

The new initiatives will raise capital investment by 17% and will be spread throughout the transportation, energy, and industrial park sectors.

The release of an indicator showing that construction activity in March increased to its greatest level in more than ten years supported this opinion.

The central province of Henan, which intends to expand investment by about 50% this year to $290 billion, is one of the regions with particularly extensive pipelines. The only province to declare a decrease in spending was Zhejiang in the east.

The overall image of China is imperfect because 10 of the 31 regions on the mainland did not make their aims public..

The approval of projects signifies a shift away from depending solely on rising consumer spending and the expansion of the services sector to boost economic activity.

Bloomberg claims that the investment demonstrates a focus on high-tech manufacturing and renewable energy, underscoring Beijing’s drive to improve technical self-sufficiency and energy security in light of its escalating competition with the US.

For instance, Henan will invest $145 billion on “industrial transformation” projects, compared to $58 billion for water and road improvements.

Rating firm Fitch predicts that China will continue to expand its use of renewable energy in 2023, following a 22% increase in wind and solar power capacity installations in 2022 due to high demand, decreased raw material costs, and a low wind power base impact.

According to China’s National Energy Bureau, the number of solar panel installations increased by 59% to 87GW in 2022. The increase was mostly caused by rising coal prices, which increased the appeal of solar energy.

China is reportedly preparing a $145 billion assistance package for its semiconductor sector, according to a December report from Reuters.

According to Bloomberg, the investment approach has the disadvantage of increasing the public debt load, which might raise worries about the financial health of the nation.

Projections from the International Monetary Fund This year, China’s corporate debt will climb by four percentage points to 117% of GDP, while the country’s total government debt, including that of local government financing vehicles, will expand by nearly 12 percentage points to 123% of GDP.