Professional Documents
Culture Documents
YUHAN ZHANG
Construction workers at a project in Hefei, Anhui province. China’s local investment programme this year includes a noticeable
decrease in real estate investment projects © Costfoto/NurPhoto via Getty Images
https://www.ft.com/content/87373957-538d-4a2c-bed2-0b3db76d858c 1/3
1/10/24, 11:15 PM China’s new growth strategy brings a fresh set of challenges
In the realm of public welfare, local investments are primarily targeting affordable
housing, education, hospitals and environmental projects. According to the
Chinese economist Yu Yongding, the country still has a significant gap in these
areas compared with developed nations. Such investment will also boost
consumption and the country’s economic growth.
In the housing sector, inventory in 2023 reached a peak not seen since 2017,
making the reduction in real estate projects beneficial. However, investing in
technology projects and increasing private investment is challenging. In theory,
investment in high-tech projects has an immediate positive impact on GDP and
may enhance overall productivity in the long term. Amid increasing great power
rivalry, it is also advantageous for China to achieve self-reliance in core
technologies.
But high-tech projects generally have longer cycles, lower input-output ratios and
non-guaranteed returns. Prolonged investment on a massive scale also creates
significant overcapacity in sectors such as solar energy, which diminishes
productivity improvements.
https://www.ft.com/content/87373957-538d-4a2c-bed2-0b3db76d858c 2/3
1/10/24, 11:15 PM China’s new growth strategy brings a fresh set of challenges
Escalating private investment brings difficulties, too: where will the investment
funds for private companies come from? Liquidity is a big problem for many such
companies in China and Chinese banks are traditionally hesitant to lend to private
enterprises.
Worse yet, many major projects are going to be funded by local government bonds.
The new special local bonds for 2024 are expected to reach about Rmb4tn
($560bn). But in the context of reduced tax revenues, declining land concession
fees and already high local debt levels in China, increasing special bond issuance by
the local governments to support major project investments is unsustainable.
In the long run, the optimal strategy entails structural reforms aimed at eradicating
local protectionism, fostering a fairer market and ensuring affordability in housing.
A fairer market means creating an environment in which medium and small-sized
private companies have opportunities to secure bank financing in the same way
that state-owned enterprises do, and engage in competitive bidding processes.
This necessitates a robust political will and a vision that not only aims at
immediate growth but also sustainable, inclusive development. So far, however,
transformative shifts do not look imminent for China this year.
https://www.ft.com/content/87373957-538d-4a2c-bed2-0b3db76d858c 3/3