The current Chinese economy is facing a complex situation and is under unprecedented pressure to maintain steady economic growth. The growth was only 4.8% in the first quarter, making a poor start to 2022.

Domestic consumption has been in a slump for two years and is still lackluster in the first quarter of this year, with total retail sales of consumer goods growing by only 3.3% year-on-year (in the first quarter) and falling by 3.5% year-on-year in March. In terms of foreign trade, in the first quarter, imports and exports grew by 10.7%, exports by 13.4%, and imports by 7.5%. Compared with last year's foreign trade data (in U.S. dollar terms), the growth of imports and exports slowed by 17 percentage points compared with the whole of last year, while exports slowed by 14.1 percentage points and imports significantly slowed by 20.5 percentage points.

With consumption and export growth slowing down, investment becomes an important means of stabilizing growth this year. In recent years, there has been a new concept of investment, known as "expanding effective investment". Compared with the past investment that focused on scale and speed, to improve the effectiveness of investment is to pursue high-quality investment, which can also be seen as 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 macro policy, which will not only boost current demand and cope with downward pressure on the economy, but also help optimize the supply structure and promote high-quality development.

The NDRC called for targeted and effective investment, while resolutely avoiding indiscriminate investment. The state will appropriately advance infrastructure investment, and actively enhance water conservancy, transportation, energy, and other infrastructure construction. It will also strengthen the construction of new infrastructure and enhance the core competitiveness of the manufacturing industry. Additionally, it aims to improve the social and ecological environment, as well as urban infrastructure. The active expansion of effective investment does not mean blindly expanding projects or expanding infrastructure investment, nor imposing massive stimulus through large-scale infrastructure investment. Rather, it means focusing on key areas in economic and social development and carrying out targeted and orderly investment projects that benefit both immediate and long-term interests.

Yet government-driven investment still requires big projects. The NDRC put forward that 102 major projects in the 14th Five-Year Plan should be steadily promoted. In the view of the NDRC, the promotion of these projects is a major measure to actively expand effective investment. In addition, the expansion of effective investment also requires the market to play a major role in mobilizing social investment to participate. For example, within the more than RMB 50 trillion annual fixed-asset investment in China, government investment accounts for a very limited share, while nongovernmental investment accounts for the majority. Government investment plays a guiding role and arouses the proactiveness of social investment.

According to the researchers at ANBOUND, improving the effectiveness of investment starts with an understanding of effective investment itself, and how it can be differentiated in diverse situations.

What then, is an effective investment? As we have pointed out, effective investment is embodied in three aspects. First, it is economically effective. It would not be an investment for the sake of investment, nor to create a pile of debt and turn it into a dead-end project. Investment should be market-oriented, and should not be wholly 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 an investment should be effective in innovation. There is no doubt that effective investment should reflect high-quality development as much as possible and give priority to innovation. In recent years, there has been a large amount of investment in semiconductor chips in China, but a lot of investment has resulted in hundreds of billions of yuan worth of dead-end projects, resulting in the most ineffective waste of investment. Third, it needs to be effective in improving people's livelihood. Steady economic growth is closely related to the realization of common prosperity. To realize effective investment, the state needs to increase investment in projects related to public subsistence. Investment in the ecological environment, urban renewal, education, medical care, elderly care, and urban public services will all be encouraged.

In particular, under the current economic situation in China, it is impossible to expand effective investment by only undertaking large projects or investing in infrastructure, because such projects will not boost the economy in a broader way. When it comes to boosting effective investment, the policy objective cannot be focused solely on making economic data look good. In addition to the three types of effectiveness mentioned earlier, the following aspects should also be noted:

First, effective investment should be made in a wide range of areas, rather than allowing only a few areas to occupy too many resources. Second, the focus of this round of investment is to stabilize the economy, but stabilizing the economy is not the same as maintaining steady growth. Under the current circumstances, stabilizing the economy is more about ensuring people's well-being. The investment to be stepped up in 2022 is a bottom-up investment for the macroeconomy, which focuses on ensuring livelihood, basic operation, 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 of future growth). In terms of investment priorities, the first one should be promoting consumption, ensuring employment, and guaranteeing the survival of small enterprises. 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 related to the long-term development of the country.

The information provided herein is derived from publicly available information that we believe to be reliable, but ANBOUND and its affiliates make no express or implied commitment or warranty as to the accuracy and completeness of the quoted information. The contents, views, analysis and conclusions of this article are for reference only and do not represent any inclination. ANBOUND and its affiliates do not accept any liability (whether direct, indirect or incidental) for any third party's acts or omissions in using this article and information. For specific suggestions or for more information on the content of this article, please contact the customer service staff of ANBOUND and its affiliated companies.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures