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KPMG expects China’s infrastructure investment to maintain robust growth in Q3   2022-08-13



KPMG said that investment in infrastructure and manufacturing will remain resilient in the second half of the year. Consumption momentum will be further released as residents’ income expectations improve, but exports could weaken.

According to the China Economic Monitor Q3 2022 released by international accounting firm KPMG on Thursday, since June, as the COVID-19 pandemic was gradually put under control and macro policies gradually took effect, the Chinese economy has shown signs of stabilization and recovery. It is estimated that the GDP growth rate in the second half of the year may be around 5.5%, and the annual growth rate will be 4.1%.

KPMG also made judgments on the trend of the three drivers behind China’s economy in the second half of the year. According to the report, investment in infrastructure and manufacturing will remain resilient. Consumption momentum will be further released as residents’ income expectations improve, and exports may weaken against the backdrop of an increasingly uncertain global economic outlook.

According to data previously released by the National Bureau of Statistics, in the first half of this year, national fixed asset investment increased by 6.1% year on year, of which infrastructure investment and manufacturing investment increased by 7.1% and 10.4% year on year respectively, making them the key drivers behind the overall investment. 

KPMG pointed out in the report that two factors were the key to supporting the continuous rise of infrastructure investment in the first half of the year. First, under the policy tone that moderately pre-planned infrastructure and full implementation of macro policies, the issuance of local government special bonds this year is aggressive, and fiscal support is obviously titled towards infrastructure. Second, the current reserve of special-purpose bond projects is relatively sufficient, and the newly issued special-purpose bonds have supported a total of more than 23,800 projects.

According to the report, the Politburo meeting held at the end of July emphasized the use of new credit from policy banks and infrastructure investment funds. The State Council has also made clear plans for key infrastructure projects, such as accelerating a batch of well-proven water conservancy projects. The government also proposed to expand the coverage areas of special bonds, by including new infrastructure and new energy projects into the scope of support. With the easing of the pandemic and the orderly recovery of freight logistics, infrastructure investment in the third quarter is expected to further improve to stabilize economic growth.

In terms of investment in manufacturing, KPMG pointed out that follow-up manufacturing investment will be bolstered. On one hand, the COVID-19 pandemic in China is better controlled, and the country’s entire industry chain has obvious advantages. Second, disparity between the producer price index (PPI) and the consumer price index (CPI) is gradually narrowing, which will help ease the cost pressure on downstream manufacturing and encourage manufacturing enterprises to invest for expansion. 

As for real estate investment which is still weak at present, KPMG expects that authorities will follow up on the tone of the Politburo meeting to introduce specific measures to ensure the completion of construction, enable the resumption of projects, and realize the stable and healthy development of the real estate sector.

In terms of consumption, although the year-on-year growth rate of retail sales in June turned positive for the first time in three months, the first-half rate was still in the negative territory. In this context, the central and local governments continued to release positive signals to promote consumption, such as implementing phased reductions on the purchase tax of some passenger cars, tapping the consumption potential of green home appliances, issuing consumer coupons, and holding shopping festivals.

KPMG said that it is expected that the surveyed urban unemployment rate will steadily decline in the second half of the year. With the restoration of residents’ expectations on employment and confidence in incomes, and pandemic control measures further optimized, consumption scenarios in brick-and-mortar stores will be gradually restored, and consumer demand will be further released, thus supporting economic growth in the second half of the year. 

In terms of foreign trade, data from the General Administration of Customs showed that China’s exports value denominated in US dollars in July increased by 18.0% year on year, an increase of 0.1 percentage points from the previous month, exceeding market expectations.

KPMG believes that the current resilience of China’s exports is the result of a combination of factors, including the gradual restoration of production in Southeast Asian countries, providing significant support to intermediate products in China. The second factor was that the supply chains of developed economies like Europe was disrupted due to geopolitical conflicts, so alternatives were sought in China. The third factor was that although expectations on overseas economic recession rose, the short-term domestic and foreign demand is still relatively resilient.

"As major countries accelerate tightening of monetary policies to fight inflation, and the global economic growth slows down, China’s export momentum may weaken in the second half of the year. However, China’s exports to the ASEAN have maintained a relatively positive trend recently. China will expand economic and trade cooperation in Asia to maintain the stability of export growth," the report said.

The author is Xin Yuan.

Source: Jiemian News


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