context: Infrastructure growth has stagnated, even after fiscal expansion, which some believe signals macro-policies’ failure to stimulate the economy, and others say points to localities’ conflicting policy goals. The latest implementation reports indicate that strong regulations persist alongside the stimulus that aims to foster rational public investment.
In the past, money was more readily available than infrastructure projects, but now these projects have to wait for money, says Jia Zhongguo 贾仲国 senior manager at a local government financing vehicle (LGFV) in central China, using a pseudonym to speak with 21st Century Business Herald.
LGFVs used to enjoy limitless government credit financing, but now this is difficult even when projects are ready, following the May 2017 'Notice on further regulation of local government debt financing', which prioritised regulation over relaxation, and austere Aug 2018 policy measures, Jia says. It is unrealistic to hope for business as usual, Jia adds, as the state tightens implicit debt control.
Even with downward pressure on the economy, the state has not loosened LGFV regulations and implicit debt, especially on the financing and project ends. Implicit debt-boosted construction remains prominent despite special purpose bond increases designed to support infrastructure investment. Local governments should specify project funding sources in proposals, and when public welfare-related, how much funding comes from public budget and a declaration not to add to implicit debt, the report notes. Local officials, bankers and Jia confirmed tightening trends, such as
- since 2018, public investment projects have been modified, suspended or revoked on a massive scale, continuously dropping infrastructure investment growth
- all projects with considerable repayment pressure are suspended, except for civil ones like water governance
- traditional infrastructure building is declining
- Jia notes new projects in his region focus on commercial value and key areas like railways
- major investment is going toward polluted water disposal facilities
- projects are redesigning to generate cashflow to get financing