The large-scale investment in infrastructure construction used to be an effective tool for the Chinese economic development, because the impoverished China needed a large number of roads, railways, airports, bridges and power equipment. After China's urbanization process started, the infrastructure and real estate construction in China had reached a new climax. When China, with more than 1.3 billion people, began to pursue a higher standard of living, its influence became globalized. This influence has been so strong and it led to the argument that China's urbanization was one of the main drivers of the world economy.
Without doubt, infrastructure construction and real estate investment have contributed a lot to China's economy in the past, but it is difficult to give accurate data. It is generally estimated that the contribution of real estate to China's GDP is about 8%. However, Anbound's chief researcher Chan Kung believes the figure may be significantly underestimated. China's resource often concentrated in a few sectors, and as resources are concentrated in a few sectors, it will bring a huge impact to the particular sectors and the particular sectors will in turn be developed at an amazing speed. That is the case with infrastructure and real estate sectors in China.
From the perspective of investment, the growth rate of investment in infrastructure construction has been lower than the growth rate of fixed asset investment in the past decade. According to the Institute of Industrial Economics of the Chinese Academy of Social Sciences, China's total investment in the major infrastructure sectors such as transportation, energy supply and information and communication had fell from RMB 637.65 billion in 2003 to RMB 514.834 billion in 2004, after that, it increased year by year to RMB 4.033985 trillion in 2014, an increase of more than 6 times in 11 years and an average annual growth rate of 18.26%. However, compared with the fixed asset investment in the same period, the investment in transportation, energy supply and information and communication grew relatively slowly. From 2003 to 2014, the investment in fixed assets has increased from RMB 5.556661 trillion to RMB 51.202065 trillion, with an average annual growth rate of 22.37%. In 2017, the investment in fixed assets totaled RMB 64.1238 trillion, an increase of 7.0% over the previous year.
The proportion of infrastructure investment in fixed asset investment is roughly maintained at around 20%.The annual statistical bulletin released by the Chinese National Bureau of Statistics revealed that in the three years of 2015, 2016, and 2017, the national infrastructure investment was RMB 10.1271 trillion (17.2% YoY growth), RMB 11.8878 trillion (17.4% YoY growth),and RMB 14.0005 trillion (19.0% YoY growth) respectively, accounting for the proportion of fixed asset investment (excluding agricultural) were 18.4%, 19.9% and 22.2%, respectively. From these data, it can be seen that infrastructure investment plays an important role in China's fixed asset investment. Moreover, despite China's economic slowdown in recent years, infrastructure investment across the country has continued to grow at a fast pace, roughly two to three times of GDP growth rate over the same period.
From the practical perspective, after years of rapid growth, the speed of China's infrastructure construction has slowed down. In particular, after the continuous regulation and control of real estate, the growth rate of domestic real estate investment has slowed down, which would in turn have a cooling effect on infrastructure investment. However, with the deterioration of the international economic, trade environment and the prominent structural problems in the domestic economy, downward pressure on China's economy is mounting. Therefore, in the process of maintaining the steady growth, China is likely to return to the track of large scale of infrastructure construction. In reality, the National Development and Reform Commission (NDRC) has begun to promote and accelerate some infrastructure projects this year. Many worry that if government restarts the large scale infrastructure and real estate programs, it will undo the restructuring efforts of recent years.
On the one hand, China needs to carry out the structural reform; on the other hand, it needs to stabilize the economic growth. So how much room does China have for infrastructure investment? Chan Kung believes that it has to do with the definition of infrastructure. Concerning infrastructure in China, it was mainly related to the roads or bridges in the past, which had been the case for decades. However, the scope of the actual infrastructure is very wide; it can be said that all public service facilities are infrastructure construction. According to the Chinese National Bureau of Statistics, infrastructure investment refers to the expenditure on the construction or purchase of projects and facilities that provide basic and popular services for social production and livelihood. These include investment in transportation, postal services, telecommunications, radio, television and satellite transmission services, internet and related services, water conservancy, environmental protection and public facilities management.
If such is the case, there is still a lot of room for infrastructure construction in China, such as solving water problems, improving land and resources, upgrading communication networks (for instance 5G network) and even building football fields in large quantities. As a result, infrastructure investment in China is in great demand, but the focus of investment needs to be shifted. We would like to emphasize that the expansion of the definition of infrastructure is not only a matter of conceptual "capacity expansion", but also perhaps more importantly, a matter of changing policy concepts. If our policy departments change the concept and inject more connotations into infrastructure construction, they are actually expanding the market space for infrastructure construction.
Final analysis conclusion:
With downward pressure on the economy and the increasing significance for steady growth policies, China will increase infrastructure investment to prevent a short-term economic stall. However, to avoid the structural problems that have arisen in past investment, China needs to change its mindset, adjust its investment structure and find new market space for infrastructure investment.
