China infrastructure investment likely to remain solid, potentially contribute to GDP growth in H2 2017: ANZ Research

China’s infrastructure investment is expected continue to be solid and will potentially be a major contributor to GDP growth in H2 2017. Assuming consumption and net exports contribute 4.4ppts (similar as in 2016) to 2017’s GDP.

Investment (or gross fixed capital formation, GFCF) will need to contribute 2.1ppts to GDP growth to arrive at the 6.5 percent growth target, requiring a real growth of 4.9 percent y/y, or a nominal growth of 6.4 percent y/y. This growth is associated with 10.2 percent y/y growth in FAI, based on their historical correlation. Applying 40 percent of contribution ratio for infrastructure investment into total FAI growth, infrastructure FAI will need to grow 19 percent y/y in 2017, ANZ Research reported.

At this year’s National People’s Congress (NPC), the government set a 9% growth target of FAI for 2017, slightly lower than ANZ’s calculated 10 percent growth required for achieving the 6.5 percent growth target. On a positive note, infrastructure FAI remained quite solid.

For the first five months of this year, infrastructure FAI increased 21 percent y/y. If China’s infrastructure FAI can sustain a monthly average growth of 18.5 percent y/y in H2, it will ensure an annual growth of 19 percent for 2017, the pace required to achieve the 6.5 percent growth target.

"To mitigate the growth risk, the government is likely to mobilise fixed asset investment (FAI) to help the country achieve its official growth target of 6.5 percent in 2017, in our view," the report said.