China’s Xi urges ‘all-out’ infrastructure push to boost growth

China’s Xi Jinping has called for an “all-out” campaign to build infrastructure, according to state media, as fears grow over the impact of strict virus restrictions on a Covid-battered economy.

Despite struggling to defeat the country’s worst outbreak in two years, the leadership is digging in its heels with a hard zero-Covid policy that involves lockdowns in the biggest cities and mass testing.

But the measures have snarled supply chains and hammered business morale, sending shockwaves through the global economy and markets.

“Infrastructure is an important support for economic and social development,” Xi said at a high-level meeting on Tuesday, according to the official Xinhua news agency.

And the Central Committee for Financial and Economic Affairs meeting added that China’s “infrastructure is still incompatible with the demand for national development and security”.

The meeting identified several sectors such as transport and energy where an infrastructure boost was needed, including the construction of ports and airports.

Recent lockdowns have clogged supply chains and transport networks — including in the economic dynamos of Shanghai and Shenzhen as well as the northeastern grain basket of Jilin.

There were some signs of easing as officials said restrictions in hard-hit cities of Jilin and Changchun would “gradually lift” from Thursday after weeks of lingering restrictions.

But fears have been growing of a lockdown in the capital Beijing, with large gatherings, group travel and weddings on hold in an effort to stamp out infections — squashing hopes of resurgent consumer spending over the five-day May holiday.

Residents of a commuter city on the capital’s outskirts were banned from travelling to Beijing after recording a single case this week.

And in another potential blow to global supply chains, the export hub of Yiwu imposed a partial lockdown on Wednesday after reporting three new asymptomatic infections.

The eastern city of around 2 million people is home to a vast wholesale market selling low-end manufactured goods to overseas importers, many in the United States.

Schools have been shuttered and residents cannot leave their housing compounds without special permits, the city government said, though shops and markets will continue to operate at reduced capacity.

Stocks rally
Xi’s comments are the latest in a series of statements and steps aimed at boosting confidence in the economy and reassuring markets, with traders nervous about the global impact of China’s heavy-handed restrictions.

Shares in infrastructure firms rose Wednesday on the back of Xi’s comments, including construction company Sany Heavy Industry and China State Construction International.

Shanghai stocks rallied more than two percent.

China’s initial pandemic recovery was boosted by heavy infrastructure investment, following a tried-and-tested strategy of heavy building that fuelled decades of runaway growth.

A major spending push, however, could also reignite debt worries.

After the 2008 financial crisis, Beijing launched a stimulus package worth hundreds of billions of dollars — including massive infrastructure investment — but that piled on the debt for local governments and state enterprises.

With risks to consumption and manufacturing exports, “initiatives to ramp up infrastructure spending are a direct policy tool to lift government spending”, said Rajiv Biswas, Asia-Pacific chief economist at S&P Global Market Intelligence.

But infrastructure is “not a quick fix”, cautioned Nomura chief China economist Ting Lu.

“Lockdowns make the task of ramping up infrastructure investment more difficult due to… travel bans and shortage of construction workers in… (affected) areas,” he told AFP.

Nomura analysts also warned that infrastructure investment can “only fill a small part of the gap left by slowing export growth, the large property sector contraction and the rising costs of China’s zero-Covid strategy”.