China opens up new financing channel for infrastructure investment

BEIJING – Reports in China suggest that two policy banks, China Development Bank and Agricultural Development Bank of China, will issue as much as RMB1.5 trillion in bonds to finance major infrastructure investment. The focus will be on shanty
town renovation, urban transport, railway construction in mid-west China, public goods provision and manufacturing upgrading.

HSBC says the move should open up another channel of long-term financing for infrastructure projects, apart from the usual bank lending, municipal bonds and private-public partnerships, and that the proceeds, mostly used as seed capital, should help generate a recovery in investment growth in coming months.

HSBC says the issuance by the two banks could be as much as RMB300 billion within 2015.

“Meanwhile, the ongoing mobilisation of fiscal deposits, a potential expansion of municipal bond quota (to as much as RMB3 trillion) as well as the NDRC's project pipeline suggest that fiscal policy is becoming more co-ordinated,” HSBC says.

“We also forecast an additional 25bps policy rate cut and 200bps reserve ratio cut,” HSBC says. “The combination of monetary and fiscal easing should help strengthen the growth recovery in 2H 2015.

“The combination of monetary easing and fiscal support should help support investment growth, and a growth recovery in 3Q. We forecast full year GDP growth at 7.1% for 2015.” www.hsbc.com (ATI).