1.2 trillion investment by Yaxia, how much economic growth will it drive?

Core Viewpoint

The Yaxia Hydropower Project officially commenced construction in July this year, with a total of 5 stepped power stations being built, with a total investment of approximately 1.2 trillion yuan.

Once the news was released, cyclical sectors and commodities surged. How should we assess the impact of the Yaxia investment?

In 2024, China's broad infrastructure investment is expected to be approximately 14.1 trillion yuan. Based on experience, the construction cycle of the Yaxia Hydropower Project is estimated to be about 10 years, with an annual investment of approximately 120 billion yuan, accounting for an average annual investment ratio of 0.85% (based on the total infrastructure amount in 2024). The proportion will gradually decrease in the later stages, and it is expected to increase infrastructure investment by an average of 0.8% annually.

The short-term cumulative multiplier for infrastructure investment is less than 1, while due to the positive capital spillover effect, the long-term cumulative multiplier effect is about 1.7 times. In the short term, the Yaxia Hydropower Project may contribute less than 0.09% to annual GDP; in the long term, the 1.2 trillion yuan investment is expected to generate an additional 2.04 trillion yuan in GDP over 10 years, with an average annual contribution of about 0.15%.

In our previous asset allocation viewpoint in July, we mentioned that there might be a wave of domestic demand policy trading opportunities for Chinese assets in July.

Main Text

On July 19, the groundbreaking ceremony for the Yarlung Tsangpo River downstream hydropower project was held in Nyingchi City, Tibet Autonomous Region.

Li Qiang, a member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, attended the groundbreaking ceremony and announced the official commencement of the project.

1. What information has been officially released about the Yaxia Hydropower Project?

In December 2024, the Chinese government approved the Yaxia Hydropower Project. Xinhua News Agency pointed out that the construction of the project will directly drive the rapid development of local industries such as engineering construction, logistics transportation, and commercial services, creating new job opportunities. Once completed, the project will enhance the level of infrastructure in electricity, water conservancy, and transportation.

In March 2025, the National Development and Reform Commission clarified that the Yaxia Hydropower Project would be promoted for commencement this year. The National Development and Reform Commission's "Report on the Draft of the 2025 National Economic and Social Development Plan" explicitly listed this project as a major investment project in key areas for the year, proposing to promote the construction of the Yarlung Tsangpo River downstream hydropower project.

In July 2025, Xinhua News Agency announced the content, location, and investment scale of the Yaxia Hydropower Project. The Yarlung Tsangpo River downstream hydropower project is located in Nyingchi City, Tibet Autonomous Region. The project mainly adopts the development method of straightening bends and tunnel diversion, constructing 5 stepped power stations, with a total investment of approximately 1.2 trillion yuan. The electricity generated will primarily be transmitted out, while also considering local self-use needs in Tibet.

2. How much infrastructure investment can the Yaxia Hydropower Project stimulate?

In 2024, China's broad infrastructure investment is expected to be approximately 14.1 trillion yuan.

Since 2018, the National Bureau of Statistics has stopped publishing investment amounts by industry and only publishes overall fixed asset investment amounts, growth rates, and growth rates by industry. Based on the investment amounts of various industries in 2017 and the investment growth rates from 2018 to 2024, combined with the recently revised data of overall fixed asset investment to eliminate inflation, our calculations show that the broad infrastructure investment amount in China in 2024 is approximately 14.1 trillion yuan The Yaxia Hydropower Project is expected to drive an increase of about 0.8% in infrastructure investment each year.

Premier Li Qiang emphasized that the Yaxia Hydropower Project is large in scale, long in duration, and has far-reaching impacts, making it a century project.

Referring to the first large hydropower station in Tibet, the Zangmu Hydropower Station, it is estimated that the construction period of the Yaxia Hydropower Project will be about 10 years, with an annual investment of approximately 120 billion yuan, accounting for 0.85% of the infrastructure investment in 2024. The proportion will gradually decrease in the later stages, with an overall average annual increase in infrastructure investment expected to be around 0.8%.

III. How much economic growth can the Yaxia Hydropower Project stimulate?

According to a research report by Wang Chuan, a researcher at the Chinese Academy of Social Sciences, titled "The Fiscal Multiplier of Government Infrastructure Investment: An Analysis Based on the DSGE Model," infrastructure investment can not only stimulate total demand in the short term but also create positive spillover effects in the long term by increasing infrastructure capital. Based on his simulated neutral results: the short-term cumulative multiplier of infrastructure investment is significantly less than 1, while the long-term cumulative multiplier is around 1.7 times.

Liu Shangxi, president of the Chinese Academy of Fiscal Sciences, once stated, "The multiplier effect of stimulus policies is getting smaller—actually, we found in our research that many stimulus policies have a multiplier effect of less than 1."

In 2024, China's nominal GDP is expected to be about 135 trillion yuan. Since the short-term infrastructure investment multiplier is less than 1, the annual investment of 120 billion yuan in the Yaxia Hydropower Project may contribute less than 0.09% to the annual GDP; however, considering the long-term multiplier of 1.7 times, the investment of 1.2 trillion yuan over 10 years could generate an additional GDP increment of 2.04 trillion yuan, averaging about 0.15% per year.

Considering that the GDP scale will continue to expand in the future, the denominator will increase, and the actual contribution will be slightly lower than the aforementioned estimates.

Once the news of the Yaxia Project was released, cyclical sectors and domestic black commodities saw price increases. Aside from the anti-involution factors, the Yaxia Project is clearly also positive information. However, based on our estimates, the driving effect of the Yaxia Project on infrastructure cannot be compared with the previous 4 trillion yuan stimulus; the reason why cyclical and black commodities have experienced a significant price increase is largely due to the related sectors having undergone continuous price declines and valuation adjustments, leading to overly consistent bearish market sentiment.

We previously mentioned in our July asset allocation view that there may be a wave of domestic demand-related policy trading opportunities in July.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk