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New government investments a shot in the arm

 

Fourteen provincial and municipal governments released new investment plans in July and August for a total of ¥12.8 trillion ($2.03 trillion) in an effort to boost local economies.

Analysts are comparing such investment plans with the ¥4 trillion in 2009, hoping that it would again help drive the country’s demand for heavy-duty and special-purpose vehicles.

In early September the National Development and Reform Commission (NDRC) approved 25 railway, 13 highway and seven harbor projects. The total length of new expressways to be built will exceed 2,000 kilometers. The projects, estimated to be at least ¥1 trillion, are also expected to boost demand for heavy-duty vehicles and construction equipment.

With new local and central government leaders taking offices soon, measures are expected to be undertaken to boost the sluggish economy.

But the huge local investment plans are mere blueprints than ready money. Such investments will reportedly involve not only government funding, but also funds from private sources. It remains to be seen if said investment would be realized.

NDRC’s ¥1 trillion on road, railroad and infrastructure projects seems to be for real. But if implemented, it would probably be only a shot in the arm as far as the country’s heavy-duty sector is concerned.

No doubt railway, highway and harbor constructions will boost demand for heavy-duty trucks and construction machinery. But such investment may exacerbate the biggest problem facing the country’s heavy-duty sector – overcapacity.

China’s annual output capacity of heavy-duty vehicles is close to 2 million units today. Annual demand is expected to be only 700,000 units this year and thereabout in the near future, or less than half of the capacity.

From a long-term point of view, the new government investment projects are likely to lead to more capacity building by manufacturers and have a negative impact on the country’s heavy-duty industry.

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