The current Chinese economy faces a complex situation and is under unprecedented pressure to maintain stable economic growth. Growth was only 4.8% in the first quarter, which makes for a poor start to 2022.
Domestic consumption has been in freefall for two years and remains sluggish in the first quarter of this year, with total consumer goods retail sales up only 3.3% year-on-year (in the first quarter) and down 3.5%. year after year in March. In terms of foreign trade, in the first quarter, imports and exports increased by 10.7%, exports by 13.4% and imports by 7.5%. Compared to last year’s foreign trade data (in US dollars), import and export growth slowed 17 percentage points from last year as a whole, while exports slowed by 14.1 percentage points and imports slowed considerably by 20.5 percentage points.
With consumption and export growth slowing, investment is becoming an important means of stabilizing growth this year. In recent years, there has been a new concept of investing, known as “expanding effective investing”. Compared to previous investments focused on scale and speed, improving investment efficiency means seeking high-quality investments, which can also be considered part of “high-quality development”. According to China’s National Development and Reform Commission (NDRC), the active expansion of effective investment is the focus of current macroeconomic policy, which will not only boost current demand and cope with downward pressure on the economy, but will also contribute to optimizing the structure of supply and promoting quality development.
The NDRC called for targeted and effective investments, while resolutely avoiding blind investments. The state will appropriately advance infrastructure investment and actively improve water conservation, transportation, energy and other infrastructure construction. It will also strengthen the construction of new infrastructure and improve the basic competitiveness of the manufacturing industry. In addition, it aims to improve the social and ecological environment, as well as urban infrastructure. The active expansion of effective investment does not mean the blind expansion of projects or the expansion of infrastructure investment, nor the imposition of massive stimulus measures through large-scale infrastructure investment. Rather, it means focusing on key areas of economic and social development and carrying out targeted and orderly investment projects that benefit both immediate and long-term interests.
Yet government-led investments still require big projects. The NDRC proposed that 102 major projects of the 14th five-year plan should be regularly promoted. In the view of the NDRC, the promotion of such projects is a major measure to actively increase effective investment. In addition, expanding effective investment also requires the market to play a major role in mobilizing social investment to participate. For example, in the more than 50 trillion RMB of annual capital investment in China, government investment accounts for a very limited share, while non-government investment accounts for the majority. Public investment plays a role of orientation and stimulates the proactivity of social investment.
According to ANBOUND researchers, improving investment effectiveness begins with an understanding of effective investing itself and how it can be differentiated in various situations.
So what is an effective investment? As we have pointed out, effective investing is embodied in three aspects. First of all, it is economically efficient. It would not be an investment for the sake of investing, nor to create a pile of debt and make it a dead end project. Investment should be market oriented and should not be fully invested by the state and government. Otherwise, it will cause a crowding out effect on the private economy and foreign capital, and is not conducive to giving full play to the guiding role of financial capital investment. Second, such investment should be effective in innovation. There is no doubt that effective investment should reflect quality development as much as possible and prioritize innovation. In recent years, many investments have been made in semiconductor chips in China, but many investments have resulted in hundreds of billions of yuan of dead-end projects, resulting in the most inefficient waste of investment. Third, it must be effective in improving people’s livelihoods. Steady economic growth is closely linked to achieving common prosperity. To make effective investments, the state must increase investments in projects related to public sustenance. Investments in the ecological environment, urban renewal, education, medical care, care for the elderly and urban public services will all be encouraged.
In particular, in the current economic situation in China, it is impossible to increase effective investment by only undertaking large projects or investing in infrastructure, as such projects will not stimulate the economy more broadly. When it comes to boosting effective investment, the policy objective cannot focus solely on presenting good economic data. In addition to the three types of efficiency mentioned earlier, the following aspects should also be noted:
First, effective investments must be made in a wide range of areas, rather than allowing just a few areas to take up too many resources. Second, the goal of this investment round is to stabilize the economy, but stabilizing the economy is not the same as maintaining steady growth. In the current circumstances, stabilizing the economy is more about ensuring people’s well-being. Investment to be scaled up in 2022 is bottom-up investment for the macro economy, which focuses on ensuring livelihoods, basic functioning and social stability. This is different from investments aimed at high growth. Third, the current situation of domestic investment in China should be divided into several stages, namely stabilizing the economy (basic fundamentals), seeking growth (fundamentals of growth) and seeking development (fundamentals future growth). In terms of investment priorities, the first should be the promotion of consumption, the guarantee of employment and the guarantee of the survival of small businesses. This should then be followed by investments in urban renewal, agriculture, energy, social security and key industries. Finally, there should be investments in major projects and industries, which are linked to the long-term development of the country.