The Bank of Korea: "China's New Infrastructure Investment Has Great Growth Potential... Belt and Road Initiative Is Delayed"

Bank of Korea 'Overseas Economic Focus'

[Asia Economy Reporter Kim Eun-byeol] It has been evaluated that China's expansion of new infrastructure investment has great growth potential in the 4th industrial sector, and that old infrastructure investment also has a significant employment-inducing effect, thus playing an important role in economic recession.

On the 19th, the Bank of Korea stated in 'Overseas Economic Focus' that "Compared to advanced countries, China has insufficient digital infrastructure coverage, so there is great growth potential in the 4th industrial sector through the expansion of new infrastructure investment." Since the outbreak of the novel coronavirus infection (COVID-19), the importance of non-face-to-face service industries has increased, and the digitalization of society as a whole has accelerated, raising expectations that it can play a key role.

As of last year, the scale of China's new infrastructure investment was about 8% of the total infrastructure investment scale. Although its share in total infrastructure investment is still small, the growth potential is expected to be high due to China's digital economy development possibilities. Morgan Stanley predicted that China would invest about 1.2 trillion yuan (approximately 206 trillion won) annually in new infrastructure for about 10 years starting this year. KOTRA also expected China to invest about 2.3 trillion yuan in new infrastructure this year.

However, in the case of new infrastructure investment, the employment-inducing effect is not large compared to the investment scale, and there is a negative factor in that friction with technology-leading countries may occur in the competition process to secure global technological superiority.

The Bank of Korea also anticipated that China's old infrastructure investment would be actively utilized this time for economic and employment stability. Since the reform and opening up, the Chinese government has met the needs of rapid economic development and urbanization through old infrastructure investment in transportation, energy, and water resources.

Old infrastructure investment maintained a high double-digit growth rate until 2017 but sharply slowed down after 2018. Due to the spread of COVID-19, it decreased more sharply in January and February, but it quickly rebounded as construction activities resumed. The growth rate of old infrastructure investment increased by 7.9% year-on-year in May, surpassing last year's level of 3.9%.

China's Belt and Road Initiative (一帶一路: land and maritime Silk Road) investment, which China has focused on, is expected to resume as COVID-19 stabilizes, but it is unlikely to recover quickly due to increased project cost burdens and the financial difficulties of participating countries caused by COVID-19.

The Bank of Korea added, "It is expected to contribute to improving the efficiency of domestic and international logistics connections, securing resource security, and strengthening financial platforms, but the spread of COVID-19 and financial difficulties in some participating countries may act as constraints."

This content was produced with the assistance of AI translation services.