China bets $600 billion on infrastructure to revive growth

China is trying to build its way out of the coronavirus slump. Economists expect local governments across the country to issue as much as 4 trillion yuan ($565 billion) in so-called special bonds this year, roughly twice last year's total, according to Bloomberg. The proceeds are to be spent on the same type of things that China splurged on following the global financial crisis more than a decade ago -- roads, airports, and railways.

The plan is evident in the city of Heze in Shandong province, a relative backwater that's nevertheless starting work on a connection to its first high-speed railway line.

While work paused for a few weeks amid the shutdowns, residents and officials there report that the framework of a modern bullet-train station is now rising above what were muddy fields just a few months ago.

"Construction has fully restarted and the scene is very lively and bustling these days," said Zhang Fangzhen, a 44-year-old local entrepreneur whose house was torn down to make way for the station.

Work restarted at the construction site on Feb 13, according to the Heze government, when the majority of China was still under lock down.

Fired on by Beijing, Heze and cities like it are pressing on with building projects of uncertain profitability with borrowed cash. The intention is that the bonds become self-financing, with project revenues sufficient to cover principal and interest over the life time of the debt.

"On the surface, debt repayments rely primarily on revenues generated by the projects themselves," said Gloria Lu, senior director for the Asia Pacific Infrastructure Ratings team at S&P Global Ratings. In reality, "these are still government debts," she said.

While governments around the world borrow record sums to fund stimulus aimed at curbing the impact of the coronavirus, China's response has been modest by comparison. That's partly due to officials' painful experience grappling with the debts incurred following massive spending on infrastructure after 2008.

Still, China has already issued 1.29 trillion yuan worth of special bonds this year, with another 1 trillion yuan to be issued by the end of May, easily surpassing the 2.15 trillion yuan total last year. The majority of analysts surveyed by Bloomberg expect the government to sell between 3 trillion yuan and 4 trillion yuan in total.

"Among all the pro-growth measures, infrastructure investment is probably the only thing that the government can take the initiative to beef up and have control over," Lu said.

China is expected to release this year's budget, along with other key targets, at the annual legislative session of the National People's Congress, which is set to kick off on May 22, according to the official Xinhua News Agency. Economists currently see the expansion slowing to below 2% this year.