China Faces CNY$20Trl Infrastructure Funding Gap in 2020 for Urbanization Drive: Think Tank
November 30, 2013 Leave a comment
China Faces CNY$20Trl Infrastructure Funding Gap in 2020 for Urbanization Drive: Think Tank
11-29 11:24 CaijingLocal governments could face rising debt cost and risks, as they struggle to seek financing for a wide range of projects during the urbanization drive.
China’s infrastructure financing gap is estimated to amount to 20 trillion yuan in 2020 as Beijing drives towards urbanization, the Economic Information Daily reported, citing an independent think tank report.
The calculation is based on an assumption that the Chinese government is able to keep its debt at below 60 percent of GDP at that time, according to the report released by the Urban China Initiative on Thursday.
Under current schemes, local governments have much of the responsibility for financing the infrastructure projects, which will emerge during the urbanization drive, experts say. China therefore should vigorously push non-debt financing and expand urban construction financing channels, in order to ward off systematic risks, the state-run newspaper said.
UCI is a joint initiative whose research is led by three major founding institutions: Columbia University, Tsinghua University’s School of Public Policy and Management, and McKinsey & Company.
The newspaper’s report included an interview with UCI researcher Li Xiaopeng, who expected “huge capital demand” in social security and public services during the process of urbanization.
According to a green book on small and medium-sized cities unveiled in 2010, the urbanization rate in China is expected to reach 60 percent by 2020, which means 250 million peasants will become city dwellers at that time.
“Deducting expenses in social safety net, our calculations show that investment demand for traditional infrastructure construction ranges between 20 trillion yuan to 30 trillion yuan,” Li was quoted as saying.
In addition to traditional infrastructure investment, the combination of urbanization and information will also create at least 10 billion investment demand in city infrastructure, Li added.
He warned local governments could face rising debt cost and risks, as they struggle to seek financing for a wide range of projects from environmental protection and public heath, to public transportation and social insurance.
As the major owner and controller of the country’s banking system, the central government will have no choice but to rescue local governments whenever they cannot repay debt, which means local debt risks are tied to the whole banking system security and even the economy, Li said.
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