(1) the infrastructure has recovered obviously, and there are great differences in the industry.

According to the latest data from the National Bureau of Statistics, the growth rate of China's infrastructure investment (excluding electricity) returned to-2.7% in the second quarter, 3.6 percentage points lower than in January-May and 27.6 percentage points lower than in the worst January-February period. In other words, the growth rate of infrastructure investment has been positive for three consecutive months since April, rebounded to 8.3% in May and fell short-term in June, but also 6.8%.

Look at it by industry.The industry with the strongest rebound in infrastructure investment is the production and supply of electricity, heat, gas and water.The cumulative year-on-year growth rate in the first half of the year has not only changed from negative to positive, but has even reached 18.2%. The monthly growth rate in May and June has been nearly 30%, much higher than the 4.5% level last year. In particular, the recovery of electricity and thermal production was the most significant, reversing the negative growth in the past three years, with an increase of 19.3 percent, of which the construction of wind power projects contributed the most, with an increase of 152.2 percent over the same period last year.

Although the transportation and warehousing and water conservancy, environment and utility management industries have recovered somewhat, they have not yet returned to last year's growth rate.Specifically, delivery warehousing was mainly dragged down by investment in the air transport industry, which fell sharply by 40% in the first half of the year and still grew at a year-on-year growth rate of-21% in June. The investment performance of water conservancy management industry is strong, but the investment of ecological protection, environmental management industry and public facilities management industry is relatively weak.

(2) Local finance leads infrastructure construction.

Local finance dominates infrastructure investment.From the perspective of fiscal expenditure, local fiscal expenditure generally accounts for more than 80% of public expenditure, while as far as the infrastructure industry is concerned, we find that the same is true. According to data released by the Ministry of Finance, local expenditures in urban and rural public facilities, water conservancy, energy conservation and environmental protection and other infrastructure industries all exceed 90%, and the transportation industry also accounts for 88%, indicating that local finance plays a leading role in infrastructure.

However, for the transport segment, the railway transport and postal services are dominated by the central finance, which accounts for nearly 60% of the central government's expenditure on railway transport and more than 90% of the postal industry.

Specifically, on the one hand, infrastructure investment is the key point in the key investment projects of each province.By the end of July, 26 provinces and cities across the country had announced key or major project construction plans, with a total investment plan of about 50 trillion yuan and an annual investment plan of 10 trillion yuan, an increase of about 1 trillion yuan over last year, of which infrastructure investment is still the focus.

In terms of the amount of investment in infrastructure, more than 30% of the annual investment in most provinces is invested in infrastructure, with Xinjiang and Guangdong accounting for the highest proportion, with more than 60%. In terms of the number of infrastructure projects, infrastructure projects in most provinces account for more than 30%. In particular, Qinghai, Xinjiang and Hunan all account for more than 50%. At the same time, we find that the annual investment plan growth rate of each province is also consistent with that of infrastructure investment.

On the other hand, the proportion of local special bonds invested in infrastructure is obviously upward, especially in new infrastructure.From the perspective of the new special debt, the new special debt in 18-19 is mainly invested in soil storage and shed reform, accounting for about 60-70%, and this year it is mainly invested in the field of infrastructure. As of July 28, the proportion of new special bonds invested in infrastructure exceeded 60%, an increase of more than 30 percentage points compared with 2019. Among them, the proportion invested in traditional infrastructure was more than 40%, and the proportion in new infrastructure also increased significantly to 21%, compared with only 3% in 19 years.

(3) how fast can the infrastructure grow?

So, in the context of marginal infrastructure development, how much infrastructure growth can be achieved this year? From the point of view of the sources of capital for infrastructure, budgetary funds, domestic loans and self-raised funds are the main sources of capital for infrastructure, and these three parts contribute more than 90% of the funds. Therefore, these three parts will be the main direction of development in the future, especially the self-financing part that has contributed 60% of the funds.

Further, self-raised funds include government funds (including special bonds), urban investment bonds, policy bank financial bonds, railway bonds, PPP and non-standard, etc., considering that real estate has entered a downward cycle, local invisible debt regulation is difficult to loosen, railway debt is relatively stable, PPP increment slows, and non-standard continues to shrink, self-financing will mainly rely on special debt.

Based on our specific calculations on the financing side, the amount of funds invested in infrastructure in this year's budget is about 3 trillion; the amount of special bonds invested in infrastructure is about 1.9 trillion; the amount of government debt invested in infrastructure is about 800 billion; and the scale of domestic loans to infrastructure is about 3.4 trillion.

Overall, the scale of infrastructure investment will increase by 1.9 trillion compared with last year, which can push the growth rate of infrastructure investment back to 10.6%.At the same time, considering that the growth rate of infrastructure in the first half of the year (full caliber) is-0.07%, the growth rate of infrastructure investment in the second half of the year may reach 18.8%.

In addition, 1 trillion yuan of anti-epidemic special treasury bonds have been added this year. According to the notice on revising the classification of government revenue and expenditure in 2020 issued by the Ministry of Finance in June, the anti-epidemic special treasury bonds are mainly invested in 18 areas, including public health system construction, transportation infrastructure construction, municipal facilities construction and 12 infrastructure areas such as old reform.Therefore, if the investment of special treasury bonds into infrastructure is taken into account, the growth rate of infrastructure investment may reach 12.2%, 14.4% in 2020, and 21.7%, 25.6% in the second half of 2020.

Infrastructure investment may boost nominal GDP growth by 2 percentage points.According to the expenditure method, the pull of infrastructure investment on nominal GDP in 2018 and 2019 is 0.4% and 0.6% respectively. If the growth rate of infrastructure investment rises to 10.6% this year, it is expected to boost nominal GDP growth by 1.95%.

Further, taking into account the emphasis on new infrastructure this year, and with reference to the structure of infrastructure investment in previous years, we assume that the proportion of new infrastructure in the narrow sense will rise to 1% this year, and the proportion of new infrastructure in the broad sense will rise to 20%. So, the new infrastructure in the narrow sense will boost nominal GDP growth by about 0.12% this year (almost zero last year), while the new infrastructure in the broad sense (including the narrow sense) will boost nominal GDP growth by about 0.8% (compared with 0.2% last year).

In comparison, traditional infrastructure is still the main force of steady growth, pulling the growth of nominal GDP this year at about 1.2 percentage points.

Risk hints: Sino-American problems; COVID-19 epidemic; economic downturn; policy changes; new infrastructure calculation is based on PPP project data, there may be some errors; anti-epidemic special treasury bonds for infrastructure investment may be overestimated.