Installing: China’s RMB4 trillion stimulus (v2.0)… Error: not enough money8 August, 2012, 12:25. Posted by Zarathustra
First, the government fine-tune policy. Then, the government says growth is a top priority, and will bring future investment projects forward. Now, local governments are all making stuff up.
The so-called RMB4 trillion stimulus last time was widely credited for stimulating growth in China after the financial crisis. Now, quite a number of economists and commentators within China regarded that largely as a mistake as it delayed the crucial rebalancing of the economy. As a result, the central government has stopped short of announcing similar stimulus so far despite repeatedly saying that growth is not a top priority.
But the local governments, as we mentioned, are all doing different things. Or at least, saying that they are doing it differently.
Yicai found that between June and July, local governments have already announced investment projects which totalled almost RMB4 trillion. These projects which are aimed to stabilise growth, if fully implemented, will become the RMB4 trillion stimulus, version 2.0.
This tally of investment projects probably include the rather outrageous projects announced by Guizhou which are claimed to be worth RMB3 trillion, and will be spread out in 10 years or so. Shaanxi, Guangdong, Guangzhou, Nanjing, Changsha, Ningbo and other provinces and cities have also announced their own measures to stabilise growth, mainly through investment projects.
Most economists and commentators who are sceptical on these projects focus on the funding of these projects, believing that it is very hard for local governments to obtain that much funding. Some of these governments have very little fiscal revenue. Guizhou’s fiscal revenue, for example, only amounted to RMB77.32 billion last year, meaning that it has little hope to be able to fund their RMB3 trillion projects through fiscal revenue alone, even if the projects take 10 years to complete.
Some are hoping for private capital, but we believe this is a wishful thinking. It is true that private capital used to have restrictions on some industries that used to be dominated by state-owned enterprises. However, we believe that the private sector is deleveraging. That means, to us, that the hope that private sector capital will play a great role in all these investment projects is not realistic.
At the end, we believe that many of these projects will have to rely on banks funding, particularly the state-owned banks. It will depend on whether the central government will actually be willing to see a version 2.0 of RMB4 trillion be implemented. If it does, then funding problems will easily be solved by directing bank credits to local governments (which has been proposed, actually).
For the moment, we remain sceptical.