The firm estimates that the national general public budget revenue may increase by about 10 per cent year-on-year in 2023, but government-managed fund revenue may continue to decline moderately.

The net financing amount of local government financing vehicles was low in 2022, about 50 per cent of the level in 2021, the firm continued.

In addition, a majority of the proceeds were used to repay older borrowings. Local governments relied mainly on the cash flow of LGFVs (local government financing vehicles), land transfer revenue, and the general public budget expenditure to reduce implicit debts, the firm said in its China Macro Flash. 

If local economies faced heavy downward pressure, this was mainly reflected in the relatively tight recurring expenditure of some local governments. Meanwhile, infrastructure construction is mainly financed by special government bonds, development-related policy financial tools, and matching loans from banks, and the role of LGFVs in financing infrastructure construction has dwindled, it said. Therefore, efforts to resolve governments’ implicit debt should not be a major concern for infrastructure investment growth, it said.

Chinese policymakers have been wrestling with ways to support the economy after a period when real estate debt worries, zero-Covid policy, crackdowns on certain sectors such as tech, and trade tensions with the US have been headwinds for the country. As the country seeks to recover momentum, infrastructure is seen as an important generator of growth. In July last year China was reportedly setting up a state infrastructure investment fund worth RMB500 billion ($73.50 billion) to spur infrastructure spending and revive the economy.
 
The CICC report said data shows that the number of government planned projects in the design stage markedly increased in the second half of 2022, implying accelerating expansion in project reserves.

This, together with funding support, should enable infrastructure investment to maintain a medium to high growth of 8 to10 per cent in 2023 and the physical workload will likely increase year-on-year, it said. CICC also estimates that infrastructure investment growth may reach 10 per cent in the first quarter of 2023 thanks to possible acceleration in rush construction.

The latest report from Preqin on The Future of Alternatives in 2027 is also upbeat about infrastructure investment. See more here.