Affected by the COVID-19 epidemic, financial support for infrastructure has been significantly increased this year. Government bonds have issued 3.6 trillion more than last year, but the growth rate of infrastructure has remained low, and has declined in the last two months, which is far lower than expected at the beginning of the year. Why is there a high growth in bond issuance but not a substantial increase in infrastructure? Where's all the money? This topic focuses on the mystery of low growth in infrastructure.

1. High growth in government debt, but low infrastructure.

After the impact of the epidemic on the economy, China's fiscal policy has obviously become more active this year.It is estimated that the net issuance of government bonds in China this year will reach 8.5 trillion yuan, an increase of 3.6 trillion yuan over last year, of which the fiscal deficit will increase by 1 trillion yuan over last year, local special bonds will increase by 1.6 trillion, and 1 trillion yuan of special treasury bonds will be issued. As a result, the growth rate of government financing stock has risen from 14% at the end of last year to more than 20% at the end of September.

Based on past experience,When the economy is weaker and the fiscal policy is more active, the growth rate of infrastructure will be significantly higher. For example, the growth rate of infrastructure in China reached nearly 22% in 2014 and more than 15% in 2016.

However, after the fiscal policy has become more active this year, the growth rate of China's infrastructure has been on the low side.As of the end of September, the infrastructure growth rate of the Bureau of Statistics (excluding electricity) was only 0.2% and that of Wind was only 2.4%. Even taking into account the short construction time previously affected by the epidemic, which may drag down the growth of infrastructure, the growth rate of infrastructure has not accelerated significantly after the epidemic has been prevented and controlled. For example, the year-on-year growth rate of infrastructure investment has slowed significantly in recent months, and is currently less than 5%.

2、The expenditure is small, the income is greatly reduced, and the financial gap is widening.

In fact, the strength of financial support to the economy depends not on how much debt the government has issued, but on how much money it has spent.If we add up the general fiscal expenditure and government fund expenditure, the growth rate of fiscal expenditure in the first nine months of this year is only 5.4%, which is not high, and the general fiscal expenditure is still in a state of negative growth.

Although the growth rate of expenditure is low, the fiscal revenue has decreased significantly.Affected by the epidemic this year, the overall economic output weakened, and the income of general finance and government funds decreased by 3.7% in the first nine months compared with the same period last year.

Like a person, if there is a significant reduction in income, even if normal spending growth is to be maintained, it may need to be achieved by increasing debt.Fiscal revenue has fallen sharply, and despite the low growth rate of expenditure, the fiscal gap in the first nine months of this year has widened to 5.7 trillion, compared with 3.6 trillion in the same period last year, and the fiscal gap has widened by 2.1 trillion. So although government bonds are issued by 3.6 trillion more this year, 2.1 trillion need to make up for the fiscal gap that widened in the first nine months.This is also an important reason why a large number of government bonds have been issued this year, but the growth rate of infrastructure is relatively low.

3、The accumulation of financial funds? Mainly in the financing platform

Apart from the widening gap between revenue and expenditure, is the low growth of infrastructure due to the accumulation of financial funds?We find that the accumulation of public finance and government funds is not obvious. Whether the financial revenue or the money raised by the issuance of bonds is not spent in time, it will be reflected in the financial deposits. However, since the beginning of this year, financial deposits have not increased significantly. In the first nine months, financial deposits have only increased by more than 600 billion yuan, which is lower than the average level of previous years. And the balance of financial deposits is also negative at present, which means that financial deposits have been consumed net in the past year.

Therefore, the sharp increase in fiscal deposits in a single month (for example, August) is mainly affected by seasonal factors such as the pace of issuing bonds and paying taxes. Financial funds are temporarily silted up, but they are generally released every other month, and there is no continuous siltation.

If we take into account the broader fiscal situation, the accumulation of funds at the level of local financing vehicles may exist.We have counted the debt scale of more than 2000 urban investment platforms, and the balance of interest-bearing liabilities of urban investment companies has expanded to 47 trillion in the first half of this year, an increase of more than 300 billion yuan compared with the end of last year. If measured by the balance panel, the debt growth rate of urban investment companies also rose to 14.8% in the first half of this year.

At the same time of debt expansion, we find that the cash of these urban investment companies has also increased significantly.The monetary capital of urban investment companies grew by 9.7% in the first half of this year, much higher than the 3.6% level at the end of last year, indicating that the funds raised by a large amount of debt may not be spent quickly, and some of them have been converted into deposits.

The temporary accumulation of funds may be related to the low interest rate environment on the one hand.At a time of monetary easing this year, low interest rates may cause companies to raise money before spending money.On the other hand, there may be a certain phenomenon of capital arbitrage.For example, companies raise money by issuing lower-cost bonds and then invest the money in higher-yielding financial products, which may not flow quickly to the infrastructure sector.

4、Expenditure has indeed picked up, but the share of infrastructure has declined.

In addition, the decline in the proportion of various types of financial funds invested in infrastructure is also an important factor restricting the growth of infrastructure.Although the growth rate of fiscal expenditure has picked up somewhat in recent months. For example, the monthly growth rate of budget plus fund expenditure has risen to more than 10% in the third quarter, but the marginal growth rate of infrastructure investment has not risen. On the contrary, it has also declined, mainly because the structure of fiscal expenditure has also changed.

We have found that the proportion of budgetary funds invested in infrastructure is decreasing.Judging from the proportion of infrastructure expenditure on transportation, agriculture, forestry and water affairs, and urban and rural community affairs, it has tended to decline since the beginning of this year, and as of September, the proportion has dropped by almost 2 percentage points compared with the same period last year.

The investment structure of local special debt is also changing, and the proportion of shed-to-debt has increased significantly.After the resumption of the issuance of special bonds for shed reform in May this year, the proportion of special bonds invested in infrastructure tends to decline, while the proportion of investment in shantytowns, affordable housing projects, and the transformation of old residential areas has increased rapidly. According to statistics, of the new special bonds issued in the third quarter, the proportion invested in shed reform and other related projects has risen to 30.6%, while the introduction of super-large quota shed bonds in some areas since October has further increased this proportion to 54%.

The reason may be that the special debt has relatively strict requirements for the income of investment projects, while the conversion of shed to debt, as a variety that is easier to issue, has increased significantly after it has been unsealed. Now that the issue is drawing to a close, it is difficult to find matching infrastructure projects, and the ratio of shed to debt in October is expected to be the highest this year.

5、Infrastructure may still be rising, and the extent should not be overestimated.

If calculated according to the fiscal expenditure budget set at the beginning of the year, the progress of fiscal expenditure this year is still slow due to the impact of the epidemic.As of September, this year's general public budget and government expenditure accounted for 67.8% of the budget value at the beginning of the year, compared with more than 70% in previous years. In particular, the progress of the general public budget is 5 percentage points slower than that of the same period last year. Therefore, in order to complete the budget, the fourth quarter is still the period of fiscal expenditure.

Looking ahead, infrastructure growth is expected to continue to rise.According to the budget data, the cumulative growth rate of + fund expenditure in the budget at the end of this year may rise to 13%, of which the average growth rate of general public budget expenditure in the fourth quarter may reach about 20%. With government funds, expenditure growth may rise to more than 30% in the fourth quarter.

But the extent of the recovery in infrastructure may also be suppressed.On the one hand, the proportion of infrastructure in fiscal expenditure has declined marginally; on the other hand, with the rise of the interest rate center, the expansion rate of urban investment platform debt will also be affected, and the current net financing scale of urban investment debt has shrunk greatly. the growth rate of broad fiscal expenditure will also decline in the future, thus restricting the further growth of infrastructure.It is expected that the growth rate of infrastructure without electricity for the whole year may reach2%Nearby, the growth rate of infrastructure including electricity rebounded to 4.5%.nearby.

Risk hint: economic downturn, policy change.