China can keep its economy stable this year by moving faster on already-approved national infrastructure investments, according to economists and one government adviser — a strategy that makes sweeping fiscal stimulus less likely.
Beijing is looking to offset an unexpected broad drop in investment, which figures released Wednesday showed has weighed on economic growth this year. At the same time, authorities are keeping a tight grip on how local governments spend money.
The investment decline stems in part from local officials now facing stricter oversight of how they spend capital. Central authorities have pointed to wasteful infrastructure projects, industrial overcapacity, and manufacturers engaging in price wars as consequences of looser spending in the past.
“The single biggest factor behind the current cooling of China’s economy was local governments,” said Li Daokui, an economics professor at Tsinghua University, speaking at an economic forum on Saturday. “They are now under pressure to repay debt,” he added.
Speeding up nationally directed infrastructure projects could help soften the impact of tighter local budgets. According to state media, Beijing plans to spend 7 trillion yuan — roughly $1 trillion — this year on improvements and new construction across water networks, logistics systems, underground pipelines, power grids, telecommunications, and computing infrastructure. Changjiang Securities estimates that such spending could reach 26.9 trillion yuan over a five-year span.
Economists caution, however, that this effort amounts to a fine-tuning of the same investment-driven growth model China has relied on for years — not the shift toward consumer spending that trading partners have long pushed for. The goal, they say, is to reduce waste and excess industrial capacity.
Policymakers are counting on centrally championed projects and investment in high-tech industries to create jobs and improve productivity, breaking a pattern over the past decade in which investment produced more debt than economic gains.
“China is now putting everything behind technology to raise productivity,” said Dan Wang, China director at Eurasia Group. “That is the only way out, and also the best way out.”
One government adviser expressed cautious optimism about investing in computing infrastructure, but raised concerns that expanding water networks into areas with shrinking populations could waste resources. “Frankly, I think this kind of large-scale investment makes little economic sense, and it’s bound to become another cycle of borrowing to repay old debts,” the adviser said, asking not to be identified given the sensitivity of the topic.
“Some policy advisers, including myself, think the money should be spent on people, rather than poured again into inefficient, or even useless, fixed-asset investment and infrastructure,” the adviser continued.
Data show China’s fixed-asset investment fell 5.7% compared to a year earlier in the first six months of 2026. Infrastructure investment dropped 2.4%, manufacturing declined 1.2%, and real estate — which has been in a serious slump since 2021 — plummeted 18%.
Local government spending has dropped from around 41% of GDP a few years ago to roughly 35%, with capital expenditure falling more sharply than payroll or other operating costs, according to estimates from Tsinghua’s Li.
Reuters calculations indicate local governments issued 2.07 trillion yuan in special bonds during the first half of the year — 47% of the quota set by Beijing, compared with 49% during the same period in 2025.
The adviser said a Politburo meeting expected at the end of July — a top decision-making body within the Communist Party — could push local governments to move faster on projects and allow them to “moderately frontload” their fourth-quarter debt allowance into the third quarter. Still, the adviser doubted that projects unable to cover their own financing costs would receive the green light.
Goldman Sachs economist Lisheng Wang said the Politburo might increase its language around easing policy, but that “significant, broad-based stimulus” appeared unlikely. Beijing would probably “draw on remaining fiscal buffers quickly to stabilise investment and growth,” he said.
A civil servant in a northwestern province of China said no new projects have been launched in the region this year, aside from some necessary renovations of older housing and routine utilities maintenance. “There are still some small-scale repair and maintenance projects, but large-scale development and construction projects have basically disappeared,” the official said.
Beyond raising standards for project approvals, Beijing has also issued a list of practices that local officials are prohibited from carrying out. That list has not been made public, but analysts believe it likely covers unauthorized tax and fee rebates, discounted land and electricity rates, and subsidies directed at individual companies rather than entire sectors.
These restrictions on local governments place greater responsibility on Beijing itself to fund the investment needed to hit annual growth targets. “The central government itself carries very little debt — less than 30% of GDP — and it holds a large amount of commercial assets that could be monetised,” said Tsinghua’s Li.
