Guizhou plans to spend 3 trillion yuan in investment projects over the next five years.
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The slowdown in economic growth and the Chinese central government's instructions on maintaining stable growth have set the stage for a series of enormous investment projects headed up by local administrations around the country.
There were already questions as to whether such heavy spending is the proper course for stimulating the economy and where the astronomical investment capital will come from.
Ningbo, a coastal city south of Shanghai, on July 16 unveiled a 26-item economic stimulus program to "push forward stable economic growth and structural transitions" by expanding investments, innovating technologies, and cutting taxes and fees. The move immediately prompted many to speculate that some other local governments would follow suit to announce their own strategies based on respective local economic situations, reported International Finance News, an affiliate of the state-run People's Daily.
As expected, the Jiangsu capital Nanjing went public one week later with a plan "to further spur domestic needs in order to pull up consumption" covering 10 fields like investments, real estate consumption, vehicle purchases, travel and leisure activities, education, health, culture, sports and entertainment.
On July 26, Changsha, the capital of Hunan province, announced an injection of 829.2 billion yuan (US$130 billion) into 195 projects in five years starting from this year, averaging 160 billion yuan (US$25 billion) each year.
Of the projected investment capital, 374.8 billion yuan (US$57.8 billion) will be used to build 10 core townships, 10 infrastructure projects including transport systems, 10 film-production districts, and 10 industrial development projects.
The International Finance News said there were also reports that southern Guizhou, a comparatively poor province, is set to announce in August investment plans totaling 3 trillion yuan (US$470 billion) covering 260 projects selected from 2,382 proposals submitted by city and county administrations.
They include 10 national-level grand projects, 50 provincial-level major plans, and 200 provincial-level special projects mainly in the ecological travel sector.
If Guizhou's investment figures are true as reported by the media, the planned total capital injection will exceed the past central government stimulus program coping with the international financial crisis in 2008 to become "the local version of the 4 trillion yuan (US$627 billion) capital spending program," said some commentators who hold mixed views on the spending sprees in the wild horse race among local administrations.
Many questioned how the local governments can raise the necessary investment funds when their tax revenues are decreasing because of economic slowdown.
Lang Xianping, a well-known economist, compared this to giving a life-saving shot to a terminally ill patient for temporary stimulus before they lapse into a worse condition than they were before. This time, the people would be holding the huge debt bag.
Ma Guangyuan, another economist, also said using "stable growth" as a smoke screen to roll out long lists of investments and exhibit their administrative performance is more dangerous than economic slowdown itself because lots of debts will be left to banks and future generations.
Business and commerce professor Song Songxing at Nanjing University said the previous four trillion yuan (US$630 billion) capital injection by the central government did yield some negative aftereffects.
However, the government should not abstain from making investments for fear of causing problems.
Massively boosting consumption is unrealistic, but gradually making investment to conduct effective investment and induce consumption remains a better option to achieve stable growth, he said.
The investment plans unveiled so far show that local governments seem to be focusing on their specific local needs and readjusting industrial structures in their regions, he added.
Professor Sun Lijian at Fudan University in Shanghai observed that the central government dictated the four trillion yuan spending plans in 2008 and let local governments carry them out. But the local administrations are now seizing the initiative this time and should be able to formulate and implement policies meeting their own specific needs. He suggested that local governments only guide the direction, provide tax incentives, and ensure an environment with fair competition. But they must refrain from deep involvement so that enterprises in the private sector can fully exert dynamic power, he said.
Kuang Xianming, director of economic research at the China Institute for Reform and Development, said the local administrations could seek loans from banks or raise funds via local bonds. But Sun said this could raise future financial risks and the best way is to attract and encourage companies to take the leading role to tackle the problems.
Song commented that there is no shortage of investment capital in China, but he key lies in how to make the best allocation of financial sources to lead capital to the correct investment directions.
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