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China infrastructure push runs up against project delays
[SHANGHAI] The concrete building shells, attended by motionless cranes and piles of rubbish, were supposed to be an affordable housing project for nearly 40,000 Shanghai residents, but now stand testament to China's slowing economy. "Work has stopped for close to a year," said a man who described himself as the live-in caretaker for the site in the city's southern district of Minhang. "There's no more money. They stopped paying the construction workers," he said, only giving his surname as Hu.
Though China has since the start of last year given the green light to infrastructure projects worth nearly 2 trillion yuan (S$427.5 billion) to arrest its economic slowdown, projects where work has stalled or been delayed are common.
With growth set to slip to its slowest in a quarter of century and financing becoming more difficult, the number of such projects is likely to grow.
Chinese policymakers last week ordered banks to keep lending and not reduce the size of their loans to local government projects under construction, especially urban subways and affordable housing.
Fixed-asset investment grew at its slowest pace in January-April since December 2000, and a study released last November by two economists affiliated with China's state planner said the delivery rate of infrastructure projects had fallen to 60 per cent over the last decade from up to 79 per cent in the 1990s.
Things have become particularly bad in the most recent years. "We're seeing a lot of delays, it can take 6-12 months between when a project is planned to when it's actually getting financed." said Susannah Kroeber, analyst at J Capital Research."In the infrastructure boom of 2009, 2010, 2011, you could really see things get started really quickly."
It is certainly taking longer now for money to find its way to the developers. A Thomson Reuters survey of data on 87 Chinese construction and building material firms showed that the median time it took to receive payment from customers at the end of last year rose to 177.23 days, twice as long as in 2010.
Reasons why projects hit roadblocks in China are manifold, ranging from initial design failings to a refusal of residents to accept resettlement offers.
In Datong, a coal-mining city in central China's Shanxi province, 125 construction projects were halted after the city mayor was transferred to another jurisdiction in 2013, state media reported in November.
Work stalled on the Minhang project after Tian Man Investment, which purchased the plot of land, lost money on two property deals in Zhejiang province, according to local media.
The local government, which was supposed to buy the finished project back, held back after the construction delays, the reports said. The project was due to be completed last year. The government declined to comment.
Industry watchers say more delays are likely as Beijing's push to wean local governments off high-interest, off-balance sheet debt conflicts with its desire to ramp up infrastructure spending. Past sprees were financed through just such out-of-favour borrowing, but now Beijing wants the provinces to turn to the fledgling municipal bond market instead.
"The transition of local infrastructure project financing from local government financing vehicle (LGFV) loans to public/private partnership and provincial government bonds has resulted in a lot of new projects being unable to secure sufficient funding yet," Credit Suisse analyst Vincent Chan said in a February note. "The old financing channel is closed, and the new one has not been established yet," he said.
Any financing bottleneck will be damaging to growth, said Julian Evans-Pritchard, China economist at Capital Economics.
"LGFVs have mostly been used to finance infrastructure projects, public works, and that has a knock-on effect on the broader economy, particularly in heavy industry and construction."