The policy force point is appropriately moved forward, and infrastructure investment ushers in an inflection point

Policies such as moderately advanced infrastructure investment are making efforts.

Yuan Da, director of the National Development and Reform Commission's Department of National Economic ComprehensiveIzation, said at a press conference on the 18th that it is necessary to introduce a series of policy measures to implement the strategy of expanding domestic demand, appropriately carry out infrastructure investment in advance, implement the local government special bonds issued in the fourth quarter of last year to specific projects as soon as possible, pay close attention to the issuance of quotas that have been issued, and strive to form more physical workload in the first quarter.

This year, the economy is stable, and the central government requires that infrastructure investment be moderately advanced. Not long ago, the State Council deployed various localities to speed up the issuance of special bonds in order to expand effective investment. Including Zhejiang, Shanghai and other provinces have announced documents related to expanding effective investment, and launched major project investment plans of 100 billion or even trillions.

Among them, on January 18, "Several Policy Measures for Expanding Effective Investment and Stabilizing Economic Development in Shanghai in 2022" was made public. The document calls for accelerating the construction of major projects, among which the preliminary plan for investment in major construction projects in Shanghai in 2022 is arranged in advance, and it is planned to complete the investment of more than 200 billion yuan. In addition, it is also required to carry out infrastructure investment in the fields of transportation, environment, new infrastructure and other fields in a moderately advanced manner.

According to the China Bond Information Network, the first financial reporter found that at least 10 provinces issued new bonds in January with a scale of more than 340 billion yuan, and these funds will be used for major infrastructure projects and other construction. Institutions generally expect that 1.46 trillion yuan of special bonds will be issued in the first quarter, coupled with the use of 1.2 trillion yuan of special debt funds in the fourth quarter of last year, infrastructure investment will usher in a significant rebound.

A number of experts told First Finance and Economics that under the deployment of the central government's "stable investment", local governments have accelerated the progress of major projects and accelerated the issuance of bonds to ensure project funds, and it is expected that the growth rate of infrastructure investment in the first quarter will rebound significantly, and the growth rate of infrastructure investment throughout the year will be significantly higher than last year, but under the constraints of hidden debt supervision and not relaxation, the growth rate of infrastructure investment will not appear at the previous double-digit high growth rate.

The cause of the sluggish growth rate of infrastructure investment

Yuan Da stressed at the above-mentioned press conference that around the stable start of the economy, the policy force should be appropriately advanced. There are many uncertainties in the first quarter of this year, and it is necessary to appropriately move the policy force forward, so as to make early arrangements, early action, and early results, and cope with various challenges with a stable economic operation situation.

As an important "grasp" to drive economic growth, investment in infrastructure construction has now reached a turning point. On January 17, data from the National Bureau of Statistics showed that national infrastructure investment in 2021 increased by 0.4% year-on-year.

"This is the lowest value since the data was published in 2014. Since 2018, the growth rate of infrastructure investment has declined, and the pulling effect on the economy has decreased. Luo Zhiheng, vice president of the Guangdong Kai Securities Research Institute, told First Finance.

In 2014, the National Bureau of Statistics released the infrastructure investment data for the first time, and the scale of infrastructure investment in that year was nearly 8.7 trillion yuan, an increase of 21.5% year-on-year. In the following years, the growth rate of infrastructure investment has maintained double-digit high-speed growth, and the scale of infrastructure investment exceeded 14 trillion yuan in 2017, an increase of 19% year-on-year. However, the growth rate of infrastructure investment fell sharply to 3.8% in 2018, and under the impact of the epidemic in 2020, the growth rate of infrastructure investment further declined, falling to 0.4% in 2021.

The reason is that Luo Zhiheng believes that this is first related to the central government's strengthening of local government implicit debt supervision since 2018, and the restriction of financing of local government investment and financing platform companies, which are the main source of infrastructure funds. In the past, the high growth of infrastructure investment was mainly driven by the expansion of debt on urban investment platforms.

He said that the sources of funds for infrastructure investment mainly include five parts: self-financing, funds within the national budget, domestic loans, the use of foreign capital and other funds, and the proportion of each source of funds in 2020 is 54.7%, 21.1%, 13.4%, 0.2% and 10.6% respectively. Among them, the largest proportion of self-financing mainly comes from urban investment bonds, public-private partnership (PPP) and non-standard investment platforms.

"From the data point of view, the infrastructure investment cycle and the urban investment platform debt expansion cycle show a high degree of synchronization, since 2004, the correlation coefficient between the two is as high as 0.84. In 2018, the central government began to intensively issue a series of documents to strengthen the supervision of hidden debt, breaking the implicit guarantee of local governments for the financing of urban investment platforms. At the same time, the new asset management regulations issued by the central bank and other countries inhibit channel business, suppress non-standards, and restrict the financing of urban investment platforms from the source of funds. After 2018, the debt expansion of urban investment platforms began to slow down, and support for infrastructure investment declined. Luo Zhiheng analyzed.

In addition to the limited urban investment and financing, also in order to prevent hidden debt risks and standardize the development of the PPP model, PPP project supervision has become stricter since 2017, and the investment amount of PPP projects has bid farewell to the previous high growth, and the investment amount has declined significantly in recent years.

According to data from the PPP Center of the Ministry of Finance, in the first 11 months of 2021, in the management database of the national PPP comprehensive information platform, the investment in newly entered PPP projects was 1,177.3 billion yuan, down 24.9% year-on-year. However, the amount of investment in landing projects and start-up projects increased slightly.

Ji Fuxing, a professor at the School of Economics at the University of the Chinese Academy of Social Sciences, told CbN that the reasons for the slow growth rate of infrastructure investment in recent years are manifold, especially under the situation of tight fiscal balance and prevention and resolution of government debt risks, the source of funds for infrastructure investment has undergone great changes.

"Under the downward pressure of the economy, on the one hand, local governments have limited their own financial investment in the field of infrastructure, on the other hand, under the situation of strict control of hidden debt, many financing platforms in the past have borrowed illegally and rely on social capital to irregular financing. In addition, factors such as land transfer or real estate market shocks and insufficient project reserves have also affected infrastructure investment. Ji Fuxing said.

In recent years, affected by the economic downturn and the impact of tax cuts and fee reductions, the growth rate of local fiscal revenue has slowed down, and infrastructure expenditure has been limited under the key expenditures such as giving priority to ensuring people's livelihood. Local governments are more dependent on issuing local government bonds, especially special bonds, to finance major infrastructure projects.

In recent years, the scale of local government special debt has risen rapidly, about 3.6 trillion yuan last year. Despite this, the proportion of special debt funds invested in infrastructure construction is about 50%, which is obviously difficult to make up for the slowdown in funds such as urban investment and financing platforms.

Ji Fuxing believes that in practice, the special debt review is stricter and has strict requirements for the project, and the proportion of infrastructure investment and even stable investment is not high. Therefore, the role of special debt in driving effective investment should be further enhanced, but special debt should not be overly relied on.

So, why did the growth rate of infrastructure investment decline further last year? Zheng Houcheng, director of the Yingda Securities Research Institute, told First Finance and Economics that in the low base of 2020, even if the economy is under pressure in the second half of last year, it is not a big problem for the economy to achieve a growth target of more than 6% for the whole year, and last year's exports were stronger than market expectations, in this context, the possibility and necessity of counter-cyclical adjustment of the macro economy by increasing the growth rate of infrastructure investment is minimal. The previous implicit debt supervision and financial supervision are still strict.

Relevant analysts of Oriental Jincheng also said that last year's macro economy entered a rebound period. Some macro policies implemented during the peak of the epidemic began to decline, which was reflected in the decline in the deficit rate, the scale of special debt, credit, and social finance to a certain extent. Infrastructure investment is a barometer of macro policy strength, and the decline of macro policy will inevitably lead to the weakening of infrastructure investment.

In addition, the above-mentioned analysts said that in 2021, the regulator's control over the macro leverage ratio and the hidden debt risk of local governments will be strengthened. This directly leads to a tightening of the financing environment for local government platforms, the postponement of the issuance of new local government special bonds, and the source of infrastructure investment is greatly constrained.

Infrastructure investment bottomed out this year

Against the background of increasing downward pressure on the economy, the central authorities have demanded that this year's economy be stable, that all regions and departments should assume the responsibility of stabilizing the macro economy, that all sectors should actively introduce policies conducive to economic stability, and that infrastructure investment be carried out in advance in a moderately advanced manner. In January, the executive meeting of the State Council deployed to expand effective investment to stabilize the economy.

In order to implement the above relevant requirements, many places have accelerated the construction of major projects and appropriately advanced infrastructure investment.

For example, on January 17, the General Office of the People's Government of Zhejiang Province released the "Twenty Articles of Zhejiang Province's Expanding Effective Investment Policies" requiring the stabilization of the basic investment plan, and the "4+1" major projects in Zhejiang Province will complete an investment of more than 1 trillion yuan in 2022. This accounts for about one-third of Zhejiang's total annual investment target. Zhejiang requires that for the provincial "4+1" major projects, capital, energy consumption, land and other elements should be guaranteed to the fullest.

In order to ensure the construction of these key projects, the progress of local bond issuance has been significantly accelerated.

According to the statistics of the China Bond Information Network, the first financial reporter found that as of January 18, Henan and Hubei have successfully issued 56.6 billion yuan of new bonds this year. From January 19, Yunnan, Shaanxi, Anhui, Jiangsu, Guangxi, Zhejiang, Hunan and Guangdong will issue bonds one after another, with a total scale of about 286.7 billion yuan. As of January 24, the scale of new bond issuance by local governments reached at least 343.3 billion yuan, of which special bonds were the mainstay. Considering that there may be places to issue bond information documents later, the final bond issuance in January will be even larger.

The scale of bond issuance in January will far exceed the same period last year, and the scale of new bonds issued by local governments in January last year was zero. In the first half of last year, due to the relatively small pressure of steady growth, bond issuance was concentrated in the second half of the year.

Zhejiang strives to increase the amount of government special bonds by more than 20% over the previous year this year. Shanghai requires that the issuance of 2022 local government special bonds issued by the Ministry of Finance be completed in advance in the first quarter, and that they be disbursed to the project units in a timely manner according to the schedule, and strive to complete the issuance of all local government special bonds in the first half of the year.

Ning Jizhe, director of the National Bureau of Statistics, told First Finance and Economics at a press conference of the State Council's new office that policies such as moderately advanced infrastructure investment are making efforts. With the acceleration of the pace of local government special bond issuance since the second half of last year, as well as the acceleration of the issuance of investment in the central budget, the 102 key projects identified in the "14th Five-Year Plan" have been launched one after another, and the "two new and one heavy" projects have been built in an orderly manner, that is, new infrastructure, new urbanization, major transportation and water conservancy projects. The increase in policy support such as fiscal and monetary investment is conducive to the steady recovery of fixed asset investment.

Yuan Da said at the above-mentioned press conference that at present, some of the special bond quotas in 2022 have been issued to local governments in advance, and various localities are gradually organizing issuance. In addition, a considerable part of the special bonds issued last year are carried forward for use this year.

Zheng Houcheng believes that under the relevant requirements of the central government this year, the responsibility of local governments for "steady growth" has been compacted, and the main focus of local governments' "steady growth" is infrastructure investment. Infrastructure investment in 2022 may face support, and the probability of the whole year is high and low. However, the probability of a sharp upward growth rate of infrastructure investment throughout this year is low.

Zheng Houcheng analyzed that there are many reasons why the growth rate of infrastructure investment this year will not rise sharply. On the one hand, the global economy is still recovering, the probability of exports this year is still at a high level, and the need to stabilize growth through infrastructure investment is low. Curbing hidden debt growth and strict financial and economic discipline are still the key tasks this year, and will not take the initiative to touch the bottom line of "strictly controlling the increase in local government debt". In addition, infrastructure is not the focus of fiscal spending this year.

Jifuxing also believes that the market has high hopes for infrastructure investment, and the growth rate is expected to rebound, but the growth rate is still limited.

He said that with the gradual landing of major projects in the 14th Five-Year Plan of governments at all levels, the issuance of government bonds has accelerated, which is conducive to the growth of infrastructure investment. In particular, in the first quarter, due to the leading role of issued bonds and capital carry-over in the fourth quarter of last year, as well as the early release of special bonds, the infrastructure construction in the first quarter is expected to be significantly increased and a higher growth rate will be achieved. From the overall situation, the fundamentals of infrastructure investment have improved, but they are still affected by many factors, and the growth rate of infrastructure is expected to increase, but it is difficult to achieve the high growth rate in the past.

Ji Fuxing believes that in fact, investment mainly includes three major sectors of manufacturing, infrastructure and real estate, and infrastructure investment is often given the role of "bottom", but infrastructure investment pays more attention to investment effectiveness and precision, and pays attention to fiscal sustainability to prevent potential risks or hidden dangers.

Luo Zhiheng said that this year's stable growth pressure is relatively large, and it is the first year after the change of local governments, and the willingness of local governments to invest in infrastructure has risen. The lack of projects has eased, coupled with the accelerated use of 1.46 trillion yuan of special bonds in the first quarter of this year, local governments to improve the efficiency of the use of special debt funds, it is expected that infrastructure investment this year will be expected to pick up, but the range is limited, the annual growth rate is about 4% to 6%, the overall trend is high and low.

Oriental Jincheng expects that the growth rate of infrastructure investment in the first quarter of this year is expected to rebound rapidly to about 7.0%, and the growth rate of infrastructure investment throughout the year is expected to rebound to about 6.0%.

Ning Jizhe said that from the perspective of the leading indicators of investment, from January to December 2021, there were 287,760 newly started projects, an increase of 36,767 over January to November; the total planned investment of newly started projects increased by 3.3% over the previous year, 0.6 percentage points faster than that of January to November, accelerating for two consecutive months. Since the beginning of this year, various localities have started a number of key projects according to the plan, and the prospects for investment growth are promising.

(First financial reporter Zhu Yanran also contributed to this article)