Guangdong warned on infrastructure investment
April 30, 2013 Category Macro-economy, Weekly
Guangdong’s decision to invest CNY1.41 trillion to beef up its infrastructure over the next three years in 202 ongoing and 258 new transport infrastructure projects has been described as dangerous by analysts, since the province is already knee-deep in debt. “Infrastructure investment can drive economic growth, but it also creates problems. This form of economic growth is very dangerous. The Guangdong government realizes it has a debt problem, but if there is no investment, there is no growth,” said Zheng Tianxiang, Transport Professor at Sun Yat-sen University in Guangzhou. The only way to drive Guangdong’s economy was through infrastructure investment since exports to the United States and Europe had weakened and domestic consumption was not growing fast enough, Zheng said. “Corruption is inevitable in infrastructure investment. Some officials will prosper,” he added. “Increasing infrastructure construction will speed up the development of northern, southern and western Guangdong and redress the regional imbalance in Guangdong’s economy, while strengthening the economy of the Pearl River Delta,” said Guangdong Communist Party Secretary Hu Chunhua. The Guangdong government aims to increase the length of the province’s expressways to 6,800 kilometers by the end of 2015 and 8,000 km by 2017, from 5,500 km at the end of last year. The province’s rail network will reach 4,100 km in 2015 from 2,303 km in 2011. From this year to 2015, Guangdong plans to complete 17 intercity railway projects in the Pearl River Delta, with an investment of CNY111.2 billion. By the end of 2015, a 386 km rail network will cover nine Pearl River Delta cities, including Shenzhen, Guangzhou and Zhuhai. Guangdong’s massive infrastructure expenditure was manageable from a fiscal perspective, said Ivan Chung, Senior Credit Officer at Moody’s Investors Service. Last year, Guangdong reported a fiscal revenue of CNY1.47 trillion and gross regional product of CNY5.7 trillion, hence spending CNY1.41 trillion on infrastructure over three years was controllable, said Chung. As of the end of 2010, Guangdong’s debt was 16% of its GDP, below the national average of 25.9%, according to Moody’s.
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