It is an appropriate time to intensify investment in public services while stepping up central government support for real estate enterprises' restructuring as China sharpens its commitment to bolstering domestic demand, said a national political adviser and senior economist.
"Without expanding investment, it would be hard to overcome weak demand over the short term," said Zhang Bin, a member of the 14th National Committee of the Chinese People's Political Consultative Conference, in an exclusive interview with China Daily.
"The approach of boosting investment, however, will differ from the past. We need to focus more on public infrastructure projects that enhance consumption and improve people's well-being," said Zhang, also deputy director of the Chinese Academy of Social Sciences' Institute of World Economics and Politics and a senior researcher at the China Finance 40 Forum (CF40).
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If China were to rely solely on consumption to bridge the output gap, household consumption would need to grow by 15 to 20 percent — a target that is unrealistic over the short term, making the role of investment indispensable, Zhang said. The output gap is the difference between a country's actual economic output and its potential output at full capacity.
"There may be fewer traditional projects like railways, highways and airports, but we should see more investment in renovating old housing, providing housing for migrant workers and developing public facilities such as libraries, hospitals, sports venues and underground infrastructure. Such investments are crucial, as they not only improve livelihoods, but also boost incomes and consumption."
In a recent CF40 research report, Zhang's team estimated that China's investments in the services sector — especially public services like education, culture, sports and underground construction — remain much lower than the average level in developed economies, pointing to great growth potential.
"I believe now is an opportune time to intensify investment in public services," Zhang said. "First, it will stimulate overall demand. Second, costs are relatively low now. Third, these investments will yield long-term economic and social benefits in the future."
The Government Work Report also said that the country will scale up investment in the services sector, while vowing specific measures to restore stability in the real estate market, including effectively preventing debt defaults by property firms.
Considering the prolonged drag of the real estate sector on aggregate demand, Zhang stressed accelerating the restructuring of property firms to further restore their financing and cash flow, as well as further reducing mortgage interest rates to boost homebuying demand.
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"This is an important task," he said, as the cash flow pressure on real estate firms, particularly private ones, has persisted and limited their capability to maintain normal business operations — and impeded stabilization of the real estate market.
To achieve this, Zhang proposed that the central government or State-owned capital can inject resources and facilitate property developers' restructuring, while the People's Bank of China, the country's central bank, could provide credit support.
For instance, the Ministry of Finance could issue special bonds, and the central bank could purchase them, Zhang said, adding that direct purchases of real estate company bonds by the central bank might also be an option.
"Central government credit can help restore market confidence with relatively limited financial input," he said. "There would be plenty of money in the market willing to invest in real estate firms once restructuring is completed, and investors could regain confidence that the companies have enhanced debt repayment capabilities."
