China Echoes 2009 Stimulus With Railway Spending Boost

China Echoes 2009 Stimulus With Plan to Boost Railway Investment
A China Railways CRH3 high speed train is parked at the Beijing South station in Beijing, China, on Monday, Aug. 22, 2011. Rail-related stocks have plunged since the accident on concerns that it will disrupt the government's plans to spend 2.8 trillion yuan on railways through 2015. Photographer: Nelson Ching/Bloomberg

China’s railway infrastructure investment may double in the second half of this year from the first six months, aiding efforts to reverse a slowdown in the world’s second-biggest economy.

Full-year spending will be 448.3 billion yuan ($70.3 billion), according to a statement dated July 6 on the website of the National Development and Reform Commission’s Anhui branch. The document indicates a 9 percent increase from a previous plan of 411.3 billion yuan. Spending was 148.7 billion yuan in the first half.

China’s fixed-asset investment has already started to pick up and a jump in spending on railway construction would echo the expenditure on rail lines and bridges that was part of stimulus during the global financial crisis. A decline in foreign direct investment reported by the government today underscored the toll that Europe’s debt woes and austerity measures are taking on Asia’s largest economy.

“China’s stimulus may be stronger than the market has expected,” said Zhang Zhiwei, a Hong Kong-based economist for Nomura Holdings Inc. who formerly worked for the International Monetary Fund. “There will be more positive signs in the coming months to confirm that China’s pro-growth policies are taking effect.”

China Railway Group Ltd. and China Railway Construction Corp., the nation’s two biggest listed rail builders, jumped in Hong Kong trading today.

The Anhui document cited the railways ministry for the information. Seven phone calls by Bloomberg News to offices of that ministry went unanswered yesterday.

Spending Comparisons

Yao Wei, a Hong Kong-based economist for Societe Generale SA, said that railway spending was typically larger in the second half of the year than the first and the significance of the reported increase shouldn’t be overstated, with the total to remain below the level in 2011.

In 2009, spending of 600.6 billion yuan on railway infrastructure was part of stimulus that spanned low-cost housing, roads and earthquake reconstruction work. In 2010, rail spending exceeded 700 billion yuan. Last year, the total was 461 billion yuan.

The ousting of Railway Minister Liu Zhijun in a corruption probe in February 2011 and a high-speed crash that killed 40 people near the eastern city of Wenzhou five months later may have slowed investment as officials strengthened scrutiny of projects. In April this year, JPMorgan Chase & Co. analysts Karen Li and Chapman Deng said the flow of railway orders should quicken from mid-year.

Shares Jump

China Railway Group jumped 4.7 percent in Hong Kong trading to HK$3.36 as of 11:05 a.m. China Railway Construction climbed as much as 4.5 percent. The city’s benchmark Hang Seng Index rose 1.4 percent.

China Daily today cited Zheng Xinli, an economist for a government-backed think tank, as saying that the nation’s growth rate may continue to decline this quarter and increased investment is crucial to driving a rebound. Zheng, vice president of the state-backed China Center for International Economic Exchanges, said spending on high-speed rail should play a role, the government-backed newspaper reported.

While the government will accelerate projects, stimulus will not be on the scale unleashed from late 2008, said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. In May, the official Xinhua News Agency said that there wouldn’t be any “massive stimulus plan to seek high economic growth.”

Inbound Investment Sags

Foreign direct investment dropped 6.9 percent percent in June from a year earlier, the government said today. Premier Wen Jiabao warned that the nation doesn’t yet have the momentum for a stable recovery, the official Xinhua News Agency reported on July 15.

The International Monetary Fund yesterday forecast that China’s economy will grow 8 percent this year and 8.5 percent next year, down 0.2 percentage points and 0.3 percentage points respectively from estimates in April.

The Shanghai Composite Index rose 0.4 percent as of 11:02 a.m. local time today after yesterday falling to the lowest level in almost three and a half years on concern that corporate profits are slumping.

The China Securities Journal reported yesterday that the State Council may hold a meeting as early as tomorrow to set the tone for monetary and fiscal policies after the economy grew 7.6 percent in the second quarter, the least in three years.

Lacking Momentum

“It should be clearly understood that the momentum for a stable rebound in the economy has not yet been established,” Wen said during an inspection tour in the southwestern province of Sichuan, according to a Chinese-language report from the official Xinhua News Agency.

In a sign of stresses in the Chinese economy, more than 2,000 Hong Kong-owned factories in the Pearl River Delta may close this year as export orders fall and wages rise, a business association said yesterday.

Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, gave the estimate in a phone interview after Ming Pao Daily earlier reported his comments. The organization’s members have garment, watch, toy and footwear factories in the export hub of Guangdong.

— With assistance by Xin Zhou

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