Economists and one government adviser predicted that China may stabilise its economic growth during this year. This is by accelerating already-budgeted national infrastructure investment projects. This strategy was to reduce the likelihood of large-scale fiscal stimulus.
Beijing anticipates addressing an unexpected decline in investment across all sectors. Data on Wednesday, 15 July ’26, reflected that growth had dragged on this year. This is while sustaining tight control over local government spending.
This decline comes as local officials face stricter security on capital expenditures. Authorities blame unproductive infrastructure projects and industrial overcapacity besides deflationary price wars among manufacturers.
Li Daokui, an economics professor at Tsinghua University, implied during an economic forum on Saturday, 11 July ’26, that local governments were the single biggest factor behind the current cooling of China’s economy.
Daokui added that they were now under pressure to repay debt.
China is reshaping its investment engine by curbing waste and overcapacity.
Accelerating national infrastructure projects could mitigate the impact of tighter local budgets.
According to state media, Beijing intends to invest USD 1 (Yuan 7) trillion this year on upgrades besides new construction spanning water networks, logistics, underground pipelines, power grids, and telecommunications as well as computing power centres. Chanjiang Securities estimates that such investment may total USD 4.04 trillion (Yuan 26.9 trillion) over 5 years.
Economists cautioned that the push is merely a recalibration of the investment-led growth model that may have powered the world’s second-largest economy for years. The initiative aims to reduce waste and excess capacity, rather than engineer the long-sought consumer-led shift desired by trading partners. Instead of engineering the long-sought consumer-led shift that trading partners want, the initiative aims to cut waste and excess capacity.
China’s economic growth has been led by exports over the last 2 years
Policymakers are betting that projects championed by the central government, along with capital channelled into high-tech industries more broadly, may generate employment besides productivity gains. This may break a decade-long pattern in which investment generated more debt than growth.
China’s director at Eurasia Group, Dan Wang, implied that China’s now investing everything behind technology to increase productivity. This strategy may be the only way out besides also being the best way out, he added.
A government adviser expressed optimism that investing in computing power may yield better results. However, he also warned that extending new water networks into shrinking demographic areas risks misallocating resources.
An adviser, who requested anonymity due to the sensitivity of the subject, asserted that, frankly, he thinks this kind of large-scale investment makes little economic sense. It’s expected to become another cycle of borrowing to repay old debts.
Some policy advisers believed that investing in people was a better use of the funds. This approach was in comparison to reinvesting in inefficient or even useless fixed-asset investments, excluding inefficient or even useless fixed-asset investments besides infrastructure.
Scrutiny on local governments
China’s fixed-asset investment contracted by 5.7% year-on-year during the first six months of ’26. This was with infrastructure investment declining by 2.4% and manufacturing declining by 1.2%; besides real estate, it witnessed a severe downturn since 5 years ago in ’21 by plunging by 18%.
Waste management
China invested less last year in ’25 when compared with prior years.
Tsinghua Li estimated that local government expenditure has declined by 6% to 35% of GDP from a previous 41% a few years back. Capital expenditure declined faster than payroll or other operating expenses.
Reuters research reflects that China issued USD 0.31 (Yuan 2.07) trillion in special bonds during the first half. That’s 47% of the allowance granted by Beijing compared with 49% during January-June ’25.
The adviser implied that it was possible that an end-July meeting of the Politburo, the top decision-making body of the Communist Party, may ask local governments to accelerate projects. This is besides permitting them to ‘moderately frontload’ their 4th-quarter debt quota into the 3rd quarter.
Even so, he expressed doubt over whether projects that cannot repay financing costs from their revenues may receive approvals.
