Xi Calls for All Out Infrastructure Push to Boost Economy

China’s President Xi Jinping made a bold commitment to boost infrastructure construction, the latest pledge by officials to bolster the economy as it gets hammered by a series of Covid-related lockdowns.

All-out efforts must be made to spur infrastructure spending, Xi said Tuesday at a meeting of the Central Committee for Financial and Economic Affairs. Infrastructure was a pillar of economic and social development, Xi added, according to a report from the state-run Xinhua News Agency. 

© Xinhua News Agency.All Rights Reserved BEIJING, CHINA - APRIL 25: Chinese President Xi Jinping, also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, sits down with representatives of teachers and students at a symposium and delivers an important speech during a visit to Renmin University of China in Beijing, capital of China, April 25, 2022. (Photo by Ju Peng/Xinhua via Getty Images)

The meeting decided the country’s infrastructure was still incompatible with the demand for national development and security, according to Xinhua. Strengthening infrastructure construction in an all-round way is of great significance to ensuring national security, expanding domestic demand and other objectives, it said.

Xi told local authorities to bolster the construction and efficiency of infrastructure networks in fields such as transport, energy and water conservation. The committee also urged increased fiscal spending, a “broadening of long-term financing channels” for construction, and better cooperation with private capital on such investment.

“The meeting suggests to us that Chinese policymakers have been increasingly aware of the strong growth headwinds from Covid restrictions and continued property downturn, and thus becoming more determined to ramp up policy-easing measures,” Goldman Sachs Group Inc. analysts including Hui Shan wrote in a report.

“It also suggests policymakers are working to resolve potential bottlenecks from project pipelines and local governors’ incentives,” they said, noting that the statement didn’t call for the prevention of a rise in local government’s hidden debt, such as borrowing by local government financing vehicles. Infrastructure investment will grow at a double-digit pace in the second and third quarters of this year, the Goldman Sachs analysts wrote. 

Official data shows infrastructure spending rose 8.5% from a year earlier in the first three months of this year.  

China has already pinned its growth hopes on infrastructure before Xi’s latest call. Planned investment this year amounts to at least 14.8 trillion yuan ($2.3 trillion), according to a Bloomberg analysis. That’s more than double the new spending in the infrastructure package the U.S. Congress approved last year, which totals $1.1 trillion spread over five years.

© Bloomberg Challenging Goal | Economists downgraded China's 2022 growth forecast on Covid damage

Fears about the economic toll of Covid Zero have shaken financial markets desperate for more policy support. The benchmark CSI 300 stock index closed at its lowest level in two years this week while the yuan has tumbled to its weakest level since November 2020.

While local governments have been selling bonds intended for infrastructure spending at a record pace, more cities are loosening limits on the property market, and the central bank has been injecting liquidity in a measured manner, some analysts say the outbreak has to first be brought under control before economic activity can pick up and that stimulus can take effect.

Economists have downgraded their growth forecasts steadily in recent weeks as Chinese authorities doubled down on Covid restrictions, raising fears of more widespread lockdowns, including in Beijing. Morgan Stanley cut its growth projection for this year by 40 basis points to 4.2%, well below the government’s target of around 5.5%.

There are signs the weakening growth outlook and market fallout are becoming a greater concern to policy makers. Earlier Tuesday, the People’s Bank of China sought to reassure markets with a broad pledge to step up support through targeted financing for small businesses and a quick resolution of an ongoing crackdown on technology firms.

The Wall Street Journal also reported that Xi told officials to ensure the country’s economic growth outpaces the U.S.’s this year, citing people it didn’t identify. 

All eyes are on the Communist Party’s Politburo -- its top decision-making body -- which is expected to gather for a critical meeting in coming days. Several prominent policy advisers and Chinese economists have called on the government to take more decisive measures to prop up the economy, ranging from the relaxation of property and internet curbs to acting with more flexibility when it comes to Covid restrictions and lockdowns.