China to Raise Debt to GDP Ratio, Tighten Infrastructure Investments

Slowing growth won’t stop China from finding a few silver linings at its annual legislative session.

The world’s second-largest economy will be raising its fiscal deficit target slightly in 2019, to 2.8% of GDP, a mere 0.2 percentage point rise from 2018. The target is still lower than the 3% international deficit warning, which is also less than that of other major economies.

At the National People’s Conference, Liu Kun, China’s minister of finance, said the target has factored in a balance of fiscal profits, spending, and the issuance of “special-purpose debts” while leaving room for “macro regulation.” He noted that the emerging market’s government debts are used mostly for investing rather than operational costs and employee payments, which occurs in many other countries.

Liu wants to enhance efforts to keep steady economic development while accommodating tax and fee cuts. This would shrink the burden on enterprises while surging markets. The minister said earnings from designated state-owned financial institutions and businesses directly under the central government will get a boost. Local governments will be asked to invest funds and assets through “multiple avenues.”

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One of those roads is infrastructure.

He Lifeng, head of China’s National Development and Reform Commission, said the government is cracking down on all investments that would create new debt or wind up only partially finished.

He did not name any specific targets nor any current projects as an example.

“Financing will support projects that are under construction or new ones that serve the overall economic and social needs,” the official said.

Railway, road construction, and waterway projects are some of China’s current plans, according to a government work report. The programs will cost about 1.2 trillion Yuan, or $178.7 billion. Roughly $86 billion is in the central government budget for related investments this year.

Lifeng also said government spending and industrial policies will go toward more private investments, adding that 62% of the total fixed-asset investments were in private capital. About 35% were made in manufacturing and equipment upgrades.

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Gaming and Leisure Properties, New Residential Investment Corp., Sinclair Broadcast Group, and Trip Advisor are the latest batch of companies to feel New York State Comptroller Thomas P. DiNapoli’s wrath over what he sees as a lack of diversity.

DiNapoli, the sole trustee of the state’s $207.4 billion Common Retirement Fund, has filed shareholder proposals against the four businesses, demanding they improve the diversity on their boards.

“Research has shown that companies with diverse boards perform better,” DiNapoli said, adding that they otherwise face a competitive disadvantage. “And when companies fail to address shareholder concerns over lack of diversity, they demonstrate a lack of accountability.”

The four companies he named are part of a growing list, now 33, that the comptroller accuses of board diversity shortfalls.

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As a paradigm, he cited BlackRock’s suggestion of a two-women minimum for boards. The Common Retirement Fund chief said he is “encouraged by signs of progress,” with women filling nearly one-third of new director openings in 2017, but dismayed as women and people of color account for “approximately 20% and 10.6% of S&P 1500 directorships, respectively.”

To DiNapoli, each board of directors should have a diversity progress report for shareholders by September. The New York fund specified inclusion across all areas, adding women and people of color in each candidate pool for new director nominees, and an update on how the companies are recognizing qualified women and people of color for their boards.

Other elements of the fund’s corporate diversity plan include proxy voting policy to oppose all incumbent board members at companies with no women directors. It has voted accordingly at 616 companies to date. In the case of businesses with only one woman on a board, the fund votes against the nominating committee members, which has happened at 450 companies so far.

DiNapoli wrote to more than 200 companies in the Russell 3000 Index that had no women directors in September. The letter warranted an explanation as to how the corporations would respond to investors inquiring the lack of diversity. Just 10 of the companies that responded have added at least one woman to their boards to date.

“We’ve put our portfolio companies on notice that we want them to be responsive and adopt best practices when it comes to the composition of their boards,” DiNapoli said.

The comptroller could not be reached for comment.

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