[Economic Daily] Liu Yuanchun, Liu Xiaoguang: Investment Vitality to Be Further Boosted

Fixed assets investment in China tends to stabilize and rise since this year, which is a result of the “six-pronged stability (stability in employment, foreign trade, investment, finance, foreign capital and expectations)” policy. During January and February, China’s fixed assets investment rose by 6.1% year-on-year, up 0.2% from the previous year, registering an increase for six consecutive months since it hit bottom last August. An analysis indicates that the current investment stability is mainly owed to a sharp rebound in real estate investment and gradually stable infrastructure investment, while manufacturing and private investment shows signs of marginal weakening, which can be further boosted in the future.

Statistics show that in January and February, national investment in real estate development grew by 11.6% year-on-year and residential investment grew by 18% year-on-year, both representing a substantial increase over the previous year. However, based on real estate sales and the increase in new construction area, the growth rate of real estate investment might decline later. During January and February, the area of commercial housing for sale decreased by 3.6% year-on-year and commercial property sales grew by 2.8%, a sharp decline from the previous year. Meanwhile, a marked decline occurred in the growth rate of new construction area of commercial housing.

During January and February, infrastructure investment increased by 4.3% year-on-year, which was lower than the overall investment growth rate, but 0.5% higher than the growth rate in the previous year. The growth rate continues to rise since it hit a record low of 3.3% last September. As the policy of stabilizing growth gradually becomes effective and given a low base in the second half of last year, the growth rate of infrastructure investment in 2019 is expected to further rise.

In contrast to a rebound in real estate and infrastructure investment, the growth rate of manufacturing investment declines significantly. With the beginning of the destocking cycle, slowdown of export growth and increased local leverage ratio and debt risk in the manufacturing sector, manufacturing investment faces great downward pressure. During January and February, manufacturing investment cumulatively grew by 5.9% year-on-year, lower than the overall investment growth rate and 3.6% lower than the growth rate in the previous year. This is associated with continuous declines in the growth rate of manufacturing value added over the past year. During the first two months, manufacturing value added cumulatively grew by 5.6% year-on-year, 1.4% lower than the growth rate in the same period in the previous year and 0.9% lower than that in the previous year. Nevertheless, the Report on the Work of the Government states that the value-added tax reform will be deepened this year, which will reduce the tax rate for manufacturing from currently 16% to 13% and that for transportation and construction from currently 10% to 9%. Moreover, the tax cut for manufacturing will take effect from April 1, which undoubtedly will contribute to an increase in manufacturing value added and then boost manufacturing investment.

From perspectives of macro static equilibrium and dynamic equilibrium, the slowdown of China’s investment growth represents an adjustment to the too rapid growth previously, which is necessary to some extent, but recently might be excessive. Given the compatibility of changes in household savings, government savings, trade deficits and passive inventory investment, the current slowdown is an excessive adjustment. At present, savings still grow at a rate of 5%~9% and the investment growth rate should be maintained within a reasonable range of 7%~9% in a counter-cyclical context.

Liu Yuanchun, Vice president of RUC

Liu Xiaoguang: Research Fellow of National Academy of Development and Strategy, RUC

The original article was published at here.