China has recently announced a RMB 1.2 trillion investment to initiate the downstream hydropower project on the Yarlung Zangbo River and established a company to advance the New Tibet Railway, signaling the government’s renewed strategy of leveraging large-scale infrastructure to stimulate the economy. According to data from China’s National Bureau of Statistics, consumption contributed 52% to economic growth in the first half of this year, exports 31.2%, and investment 16.8%. However, retail sales growth has dropped to its lowest level since the end of last year, while external demand faces headwinds from U.S. tariffs and global risks, positioning investment once again as the policy tool of choice.
Meng-Chun Liu, Director of the First Research Division at the Chung-Hua Institution for Economic Research (CIER), analyzes that when local government debt is tightly controlled and real estate investment remains sluggish, the central government often turns to major public works to bolster the year’s GDP. Yet, if the primary objective of such investments is economic rescue, their long-term benefits tend to be limited.
Deputy Director Chia-Hsuan Wu further observes that China’s economic structural transformation remains constrained, with persistent reliance on investment-driven growth. As infrastructure such as railways, highways, and airports approaches saturation, marginal returns are diminishing. Coupled with heavy fiscal pressures in the post-pandemic era, the maintenance and subsidy requirements for large-scale infrastructure projects are likely to exacerbate fiscal burdens in the future. While these initiatives offer a short-term “stabilizing” effect in the realm of infrastructure policy, ensuring economic resilience requires China to prioritize domestic demand expansion and industrial structural upgrades. Otherwise, traditional infrastructure alone will prove insufficient to sustain long-term growth.
Author: CIER Editorial Team
Date: September 19, 2025