China's issuance of special bonds is expected to accelerate in the third quarter, which will shore up the low, single-digit growth of the country's infrastructure fixed-asset investment (FAI) this year, according to a report from Fitch Ratings.

 

China's infrastructure investment rose 7.8 percent year on year in the first half, easing from a 29.7 percent increase in the first quarter due to the impact of a high base since May last year, official data shows.

 

Fitch attributed the modest infrastructure investment in the first six months to the slow allocation of special bond quotas and weak public-private partnership (PPP) transactions.

 

The issuance of special bonds recovered in the second quarter and is likely to accelerate in the latter half of the year, with the full-year quota underused, according to the report.

 

Regulatory prudence concerning special-bond-funded projects and local fiscal risks, however, could continue to make local governments more cautious about raising leverage, it noted.

 

The report also forecast that the growth of China's construction sector is likely to stabilize in the second half of the year.

 

The prices of building materials, including cement and steel, slipped at the end of the first half after rising for months, as FAI moderated and the rainy season began.

 

Fitch said the growth of Chinese construction companies may have peaked in the first half due to the low-base effect caused by the COVID-19 pandemic last year, and said it expects their expansion pace to gradually return to more sustainable levels in the coming months.