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China’s quiet stimulus helps lift steel mart sentiment

Keywords: Tags  China stimulus, economic stimulus, steel market, steel demand, Li Keqiang, Credit Suisse, railway projects, housing upgrades environmental protection funds

SHANGHAI — China’s government wants to meet its target of growing the economy by 7.5 percent this year and has launched a package of low-profile infrastructure investments to help achieve its goal.

This program isn’t on a par with the 4-trillion-yuan ($648-billion) injection seen in 2008, but it has played a crucial role in turning sentiment around, evidenced by benchmark iron ore prices averaging more than $130 per tonne so far in the third quarter.

The government appears keen to provide a steady flow of investment as it pursues a broader and riskier package of economic reform.

The new government has a higher tolerance for a relatively slow economic growth rate, but has more determination to improve the country’s economy by boosting consumption.

Premier Li Keqiang is "not interested in driving up growth rates to an unsustainable level at the expense of future instability in the economy and financial system," economists from Switzerlands’s Credit Suisse Group AG said in a research note Sept. 4.

Chinese state media or government websites, some of the confirmed projects tied to the steel sector include:

• Railway projects: The State Council in late-July decided to raise its railway investment in 2013 to 690 billion yuan ($112 billion) from 650 billion yuan ($105 billion). New projects will number 47 this year, up from the original plan to launch 37 schemes. Beijing at the same time has opened up more channels for private financing of rail projects. The government will set up railway development funds to attract investments, with the goal of raising 200 billion yuan ($32 billion) from the public in 2013 and 2014.

• Housing upgrades: Beijing in late June said it would focus on accelerating the renovation of substandard housing in a bid to boost investment and consumption. In line for redevelopment in the next five years are 10 million households in run-down urban areas, of which 3.04 million households will be addressed this year. State-owned Chinese banks are also starting to offer support to the shantytown renovation. China Development Bank in early August said it would issue dedicated loans of at least 100 billion yuan ($16 billion) every year for the next five years.

• Environmental protection funds: The government is spending more than 1.7 trillion yuan ($276 billion) on environmental protection schemes over the next five years, which could include replacing or upgrading industrial equipment.

• Urban transportation projects: Authorities in more than 10 fast-growing cities have received approval for new projects. The Chongqing municipal government, for one, on Aug. 11 said that a subway project in the city could be kicked off as early as the end of this year. Its total investment is estimated to reach 31.4 billion yuan ($5 billion). Typically, an investment of 100 million yuan ($16 million) in urban transportation would be able to create 10,000 tonnes of steel consumption.

A version of this article was first published in AMM sister publication Steel First.

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