China has instructed heavily indebted local governments to delay or halt some state-funded infrastructure projects, three people with knowledge of the situation said, as Beijing struggles to contain debt risks even as it tries to stimulate the economy.
Increasing its efforts to manage $13 trillion in municipal debt, the State Council in recent weeks issued a directive to local governments and state banks to delay or halt construction on projects with less than half the planned investment completed in 12 regions across the country, the sources said.
Beijing has been tightening curbs on debt in recent months to defuse risks to the world’s second-largest economy and its financial stability, while also trying to stimulate growth that has long relied on infrastructure investments by local governments.
Infrastructure targeted in the latest directive, which has not been previously reported, includes expressways, airport reconstruction and expansion, and urban rail projects, one source said.
Some projects, such as those approved by the central government or for affordable housing, are exempt, two sources said.
The sources asked not to be identified as the directive was confidential. The State Council Information Office, which handles media queries for the council, China’s cabinet, did not respond to a request for comment.
Reuters reported in October that the council had restricted the ability of local governments in the 12 regions to take on debt and limited the state-funded projects they could launch.
Then it ordered local governments to halt “problematic” public-private partnership projects and placed other limits on investment, Reuters reported in November.
Annual foreign investment shrinks for first time since 2012
Foreign direct investment into China shrank for the first time in over a decade in 2023, data released by the commerce ministry showed, underscoring the challenge Beijing faces if it is to win back foreign firms as Western governments talk up “de-risking”. Overseas firms last year invested $157.1 billion in the world’s second-largest economy, according to a statement on Friday, which represents a drop of 8.0 per cent year-on-year and marks the first decline since 2012. “2024 will be worse,” said Alicia Garcia Herrero, chief economist at Natixis.
A meltdown in Chinese shares is wreaking havoc on the country’s asset management sector, pushing mutual fund closures to a five-year high in another sign of waning investor confidence. About 240 local mutual funds were liquidated last year, according to Bloomberg-compiled data dating back to 2014. That’s the most since 2018, when stricter asset management rules triggered a major industry shakeup.
Brazil backs Beijing’s ‘One China policy’: Minister Wang Yi
Brazil supports Beijing’s “One China policy”, Foreign Minister Wang Yi said on Friday after meeting in Brasilia with his Brazilian counterpart Mauro Vieira.
The two men also discussed the conflicts in Ukraine and Gaza and how they can be resolved, Vieira said, with China’s top diplomat saying the two trade partners need to build closer levels of confidence. A new extended visa agreement between the two nations should spur tourism, Vieria said.
First Published: Jan 19 2024 | 11:55 PM IST