The author is Nomura economist Zhiwei Zhang
China’s State Council says today that it will promote railway investment in the second half of the year. The goal is to "exceed the planned investment," according to the official announcement.
We estimate that if the government achieves the reported annual target, railway investment will pick up meaningfully to RMB343 billion in the second half from RMB187 billion achieved in the first half.
But year-on-year growth will decline from an increase of 25.7% to a drop of 7.2%. That is because railway investment in 2012 was heavily back-loaded, with RMB148.7 billion in the first half and RMB369.8 billion in the second half.
We think railway investment in the second half this year may exceed the plan, but only modestly. Therefore the slowdown in railway investment growth in year-on-year terms is still possible. This is consistent with our view that growth will slow to 7.4% in the third quarter and 7.2% in the fourth quarter.
In other words, the recovery in the fourth quarter last year was driven by a very strong fiscal stimulus through infrastructure investment. The current policy easing helps to mitigate downside risks, but is not strong enough to boost a sharp recovery in growth.
(The article has been edited for clarity)