China is expected to support economic growth this year by accelerating infrastructure projects that have already been approved and budgeted, reducing the need for a broad fiscal stimulus package, according to economists and a government adviser. 
The move follows data released earlier this week showing that investment across key sectors has weakened and has become a drag on the country's economic growth. While Beijing aims to increase investment through centrally planned projects, it is continuing to maintain strict oversight of local government spending to avoid another build-up of debt and inefficient investments. 
Authorities believe tighter scrutiny of local government capital expenditure is necessary after years of spending on infrastructure projects that delivered limited economic returns, contributed to industrial overcapacity and intensified price competition among manufacturers. 
Speaking at an economic forum in the past week, Tsinghua University economics professor Li Daokui said the biggest reason behind the current slowdown in China's economy was the financial pressure on local governments. He explained that local administrations are now focused on repaying debt, limiting their ability to launch new investment projects. 
To offset weaker local government spending, Beijing plans to accelerate nationally funded infrastructure projects. 
According to Chinese state media, the central government has allocated around CNY 7 trillion (approximately USD 1 trillion) this year for upgrades and new construction covering water networks, logistics infrastructure, underground pipelines, electricity grids, telecommunications systems and computing power centres. Brokerage Changjiang Securities estimates that total investment in these sectors could reach CNY 26.9 trillion over the next five years. 
Economists said this does not represent a shift away from China's investment-led growth model. Instead, it is an attempt to improve the quality of investment by reducing waste and avoiding the excessive borrowing that characterised previous infrastructure spending. China has relied heavily on infrastructure investment for decades to drive economic growth, but concerns over rising debt and underutilised projects have increased in recent years. 
Dan Wang, China Director at Eurasia Group, said the government is placing significant emphasis on technology to improve productivity, adding that it is viewed as the country's best path for sustaining long-term economic growth. 
However, one government adviser, who requested anonymity due to the sensitivity of the matter, cautioned that while investment in computing infrastructure could generate better returns, extending water infrastructure into regions facing population decline could result in poor allocation of resources. 
The adviser also said some policy advisers believe government funds would produce stronger economic benefits if directed towards households rather than additional fixed-asset investment and infrastructure projects that may not generate sufficient returns. 
China's investment data reflects the impact of tighter financial controls on local governments. 
During the first six months of 2026, China's fixed-asset investment declined 5.7% year-on-year. Infrastructure investment fell 2.4%, manufacturing investment dropped 1.2%, while the real estate sector, which has been facing a prolonged downturn since 2021, recorded a sharp 18% decline. 
Li estimated that local government spending has fallen to around 35% of GDP, compared with 41% of GDP a few years ago, with capital expenditure declining faster than spending on salaries and routine government operations. 
Reuters calculations also showed that local governments issued CNY 2.07 trillion worth of special bonds during the first half of 2026, representing 47% of the borrowing quota approved by Beijing. This was slightly lower than the 49% utilisation recorded during the same period last year. 
The government adviser said the Communist Party's Politburo could, at its end-July meeting, ask local governments to speed up project execution and allow them to moderately bring forward part of their fourth-quarter borrowing quota into the third quarter. 
However, the adviser indicated that projects unable to generate enough revenue to cover their financing costs are unlikely to receive approval under the current framework. 
Goldman Sachs economist Lisheng Wang said the Politburo could adopt stronger language supporting policy easing but believed that significant economy-wide stimulus remains unlikely. Instead, Beijing is expected to use its remaining fiscal capacity to stabilise investment and economic growth. 
A civil servant from a northwestern province said that, apart from housing renovation and utility maintenance work, almost no new large-scale construction projects have been launched in the region this year. He indicated that while small repair works continue, major development projects have largely disappeared. 
Alongside stricter project approvals, Beijing has also introduced new restrictions on practices that local officials must avoid. Although the list has not been made public, analysts believe it includes unauthorised tax incentives, discounted land and electricity prices, and subsidies provided directly to individual companies rather than entire industries. 
These tighter controls are expected to place greater responsibility on the central government to finance investment needed to achieve China's annual growth targets. 
Li noted that the central government has comparatively low debt, estimated at less than 30% of GDP, while also holding substantial commercial assets that could potentially be moneti 
Source Reuters