By Alessandro Albano
Investing.com - The Shanghai and Shenzhen stock exchanges closed broadly higher on Wednesday, bucking the trend of most Asian exchanges. Premier Xi Jinping announced an "all-out" campaign to build new infrastructure which, according to the Central Committee for Financial and Economic Affairs, is "incompatible with the demand for development and national security".
The SZSE Component rose 4.3% (-27% since the start of the year), while the Composite of financial hub Shanghai Composite rallied 2.5% (-19% YTD). The FTSE China A50 closed positive by 2.1%.
According to a report by the state-run Xinhua news agency, Xi said during a high-level summit that infrastructure is "an important support for economic and social development", identifying strategic sectors such as transport and energy where "upgrading is needed".
The Prime Minister's intervention comes at a complicated time for China. The zero-tolerance policy against Covid applied to the country's most important industrial centres, such as Shanghai and the inner regions, has aggravated the country's ongoing supply crisis, with storage levels at ports (China's key artery) reaching record levels.
The manufacturing PMI hit a 25-month low in March, slipping to 48.1, contraction territory, with "a variety of factors adding to the downward pressure on China's economy and underscoring the risk of stagflation," said Wang Zhe, senior economist at Caixin Insight Group. The same index for services hit pandemic-era lows as it contracted to a reading of 42, registering cost increases and employment declines.
As such, the central bank has intervened several times in recent months to support an economy already reeling from the credit crisis stemming from the 'deliberate' collapse of China Evergrande (HK:3333). After cutting primary loan rates and injecting liquidity, the PBoC on Tuesday approved floors for the yuan (which had previously fallen to 2015 lows) and local stock markets.
With risks to consumption and manufacturing exports, "initiatives to increase infrastructure spending are a direct policy tool to increase government spending," Rajiv Biswas, chief Asia-Pacific economist at S&P 500 Global Market Intelligence, told AFP.
However, according to Nomura chief economist for China Ting Lu, strengthening infrastructure "is not a quick fix". "Confinements make it increasingly difficult to increase investment in infrastructure because of travel bans and a shortage of construction workers in the affected areas," he told AFP.
In addition, "it would be unrealistic to expect much faster infrastructure investment growth, and its pace ... would only fill a small part of the gap left by slowing export growth, the large contraction in the real estate sector and the rising costs of China's zero-Covid strategy," Nomura said in a recent report.