Infrastructure investment vital for China's continual growth

BEIJING - China's latest move to fast track approvals for major projects has raised concerns that the country is compromising long-term economic gains by rushing to attract investment to bolster slowing growth.

But at a time when external demand shows no signs of improving and domestic consuming habits need time to adjust, well-planned infrastructure investment seems essential, if not the only option for China to boost its sagging economy that slowed to an almost three-year low of 8.1 percent in the first quarter.

Anxieties over a new spree of investments intensified recently after the wide circulation of a photo of Mayor Wang Zhongbing kissing an approval document. The mayor of Zhanjiang was jubilant as a steel mill in the southern city had got the green light.

The scene was read by some as a symbol that the government is once again relying on investment to spur growth, which they think will lead to future troubles.

In 2008, China unveiled a 4-trillion-yuan stimulus package that has helped China weather the global financial crisis, but the plan also created lingering problems in China, including asset bubbles, inflation and redundant construction.

For these reasons, China's acceleration of project approvals in recent months have caused worries over a return of high inflation and construction of Ordos-like ghost towns.

However, regarding the scale of China's infrastructure investment, which amount to thousands every year, misplanned cases are rare.

It is true that the government should pay much caution to over-heating risks, but simply by restricting infrastructure investment is not the solution. China has much room to develop its infrastructure compared to Western countries.

In a recent report, Morgan Stanley said most of the infrastructure investment under the 12th Five-Year Program have been better studied and prepared, and are of potentially higher quality, than those rolled out as part of the 2008 stimulus package.

"We see the current window of declining inflation and lower growth as a good opportunity for the NDRC to push out more projects to help urbanization and industrialization in the longer term," said the report.

Moreover, China's determination to transform its growth pattern offers more investment opportunities in the emerging industries that will carry long-term benefits.

Although infrastructure spending will pile up local government debt, statistics suggest the risks are controllable, as China has been taking steps to expand financing channels for cash-strapped local governments.

Last year, China approved the cities of Shanghai and Shenzhen, as well as the provinces of Zhejiang and Guangdong, to issue bonds and the government said the bond issuance trials will be continued this year.

Meanwhile, besides investment plans, China this time has initiated a slew of other structural reforms, including taxation reductions and opening the floodgates for private investments, to target long-term sustainable growth.

But these policies will take time to have an effect on the economy, and in the short term, infrastructure investment will shield the economy from a hard landing.