Beijing hits brakes on subway boom over debt concerns

A member of security personnel stands on duty on an empty train platform inside a station on the Subway Line Number 1 in Beijing, China. (Reuters
Updated 15 November 2017
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Beijing hits brakes on subway boom over debt concerns

SHANGHAI: China has hit the brakes on subway projects in at least three cities and Beijing is asking others to slow down their plans, local governments and media have reported, indicating concerns over high debt from city-level infrastructure spending.
China has been in the grips of a metro-building binge with more than 50 cities working on over 1 trillion yuan ($150.8 billion) worth of projects, after population restrictions were loosened last year to allow more cities to have metro systems.
Such infrastructure spending has helped to shore up economic growth but is now being scrutinized more closely after the government pledged to clamp down on financial risks. Policymakers have warned about the risk of asset bubbles due to high levels of corporate and household debt in the economy.
China’s overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006.
Financial magazine Caixin, citing unnamed sources close to the matter, reported that authorities in Inner Mongolia’s Hohhot and Baotou cities have scrapped approved projects worth billions of dollars in recent months due to concerns over finances.
Xianyang city, which wants to build six lines to link up to central Shaanxi province’s capital of Xi’an, said in a statement this month some of its plans had not yet been approved by the state planner, the National Development and Reform Commission.
“The NDRC has become more cautious about approving metro construction plans and it will be difficult to achieve approval within the year,” it said, adding that one of the factors was debt concerns over the Baotou metro.
The Economic Observer newspaper said it was told by the Wuhan city planner that the NDRC was re-evaluating the country’s subway construction situation.
The Baotou city planner declined to comment when contacted by Reuters on Wednesday. The NDRC and authorities in Hohhot and Wuhan did not immediately respond to requests for comment.
Guotai Junan analyst Gary Wong said such a crackdown on metro projects was appropriate given that many remote and financially weak cities had undertaken metro projects. He said he did not anticipate a large impact on locomotive suppliers such as CRRC Corp. who have shifted focus to metros to offset the slowing high-speed rail market.
“They are already full with orders, even if they don’t get new orders at the moment they will still be busy for the next 2-3 years,” he said.
China would overtake Europe and the Americas if all 50 cities went ahead with their metro plans, data from the International Association of Public Transport showed. Europe has 46 cities with metro systems, and America has
33 cities.
— REUTERS


IMF warns of rising risks to global growth amid trade tensions

Updated 16 July 2018
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IMF warns of rising risks to global growth amid trade tensions

  • Worsening trade confrontations pose serious risks to the outlook, the IMF said
  • The fund warns growth could be cut by a half point by 2020 if tariff threats are carried out

WASHINGTON: The global economy is still expected to grow at a solid pace this year, but worsening trade confrontations pose serious risks to the outlook, the International Monetary Fund said Monday.
The IMF’s updated World Economic Outlook (WEO) forecast global growth of 3.9 percent this year and next, despite sharp downgrades to estimates for Germany, France and Japan.
The US economy is still seen growing by 2.9 percent this year, and the estimate for China remains 6.6 percent, with little impact expected near term from the tariffs on tens of billions of dollars in exports the countries have imposed on each other so far.
“But the risk that current trade tensions escalate further — with adverse effects on confidence, asset prices, and investment — is the greatest near-term threat to global growth,” IMF Chief Economist Maurice Obstfeld said.
The fund warns growth could be cut by a half point by 2020 if tariff threats are carried out.
Although the global recovery is in its second year, growth has “plateaued” and become less balanced, and “the risk of worse outcomes has increased,” Obstfeld said in a statement.
The report comes as US President Donald Trump has imposed steep tariffs duties on $34 billion in imports from China, with another $200 billion coming as soon as September, on top of duties on steel and aluminum from around the world including key allies.
China has matched US tariffs dollar for dollar and threatened to take other steps to retaliate, while US exports face retaliatory taxes from Canada, Mexico and the European Union.
“An escalation of trade tensions could undermine business and financial market sentiment, denting investment and trade,” the IMF report said.
In addition, “higher trade barriers would make tradable goods less affordable, disrupt global supply chains, and slow the spread of new technologies, thus lowering productivity.”
The IMF said growth prospects are below average in many countries and urged governments to take steps to ensure economic growth will continue.
The fund said global cooperation and a “rule-based trade system has a vital role to play in preserving the global expansion.”
However, without steps to “ensure the benefits are shared by all, disenchantment with existing economic arrangements could well fuel further support for growth-detracting inward-looking policies.”
The sweeping US tax cuts approved in December will help the economy “strengthen temporarily,” but growth is expected to moderate to 2.7 percent for 2019.
And while the fiscal stimulus will boost US demand, is also will increase inflationary pressures, the WEO warned.
China’s growth also is seen slowing in 2019 to 6.4 percent.
After upgrading growth projections for the euro area in the April WEO, the IMF revised them down by two-tenths in 2018 to 2.2 percent, due to “negative surprises to activity in early 2018,” and another tenth in 2019 to 1.9 percent.
The estimates for Germany, France and Italy were cut by 0.3 points each, with Germany seen expanding by 2.2 percent this year and 2.1 percent in 2019. France’s GDP is expected to grow 1.8 percent and 1.7 percent.
Meanwhile, Britain is now forecast to grow 1.4 percent this year, 0.2 points less than the April estimate, and 1.5 percent in 2019.
Japan’s GDP is seen slowing to 1.0 percent this year, two-tenths less than previously forecast, “following a contraction in the first quarter, owing to weak private consumption and investment.” It should grow 0.9 percent the following year.
India remains a key drivers of global growth, but the GDP outlook was cut one-tenth for this year and three-tenths for next year to 7.3 percent and 7.5 percent, respectively.
Brazil saw an even sharper 0.5-point downward revisions from the April forecast, to 1.8 percent this year.