Beijing’s stimulus measures questioned

By Jamil Anderlini in Beijing Published: May 18 2009 18:58 Last updated: May 18 2009 18:58 China’s much vaunted Rmb4,000bn economic stimulus package is being delayed by local governments unable to raise their share of financing, according to a report from the state auditor. The survey, published on Monday, is the first official indication that China’s stimulus measures have not been as effective as the government claims. The auditor said in some cases local governments had stumped up less than half the funds they had promised for projects in their jurisdictions, even though Beijing had transferred 94 per cent of the money earmarked by the central government for the stimulus plan. The news comes as some economists question the efficacy of these measures in putting the country on a sustainable growth path that relies less on overstretched western demand for cheap Chinese exports. Central government has pledged Rmb1,200bn ($175bn, €130bn, £114bn) for infrastructure and public works projects to boost flagging growth, with the rest of the Rmb4,000bn expected to come from local governments, state-owned enterprises and private companies. Some projects have been unable to start on time while others have proceeded slowly because of a lack of funds, according to a survey of 335 stimulus-related in-vestment projects conducted by the National Audit Office. The published summary of the report did not provide further information or say which regional governments were at fault but added some local officials had made false reports on the progress of investment projects and some had just used stimulus funds to pay off old debts. Even senior financial officials in Beijing do not have a clear picture of finances at local and regional governments, which are not allowed to raise funds through bond sales on their own behalf and are often heavily indebted to state-controlled banks. The NAO is supposed to provide some oversight in a one-party system with few checks or balances on Communist party power but its reports are often superficial and fail seriously to challenge powerful interest groups. Despite its complaints that local governments are delaying the stimulus package, the audit office concluded that no serious abuse of stimulus funding had occurred and the stimulus plan had no big problems. It did say that future audits should focus on lavish spending and misuse of public resources by government officials. Beijing should investigate and punish officials responsible for building prestige projects and monuments to themselves or projects with poor construction quality. Some economists have warned that China is reacting to the current global recession in the same way it did to the 1997-98 Asian financial crisis and the 2000-01 dotcom bust in the mistaken belief that government infrastructure spending can tide the economy over until external demand for Chinese exports returns. “I’m worried about China staying on the same unbalanced, unsustainable path,” Stephen Roach, Asia chairman for Morgan Stanley, told reporters in Shanghai last week. “China needs to stop depending on the over-extended American consumer and needs to rely more on the untapped potential of its own consumers.” Beijing’s stimulus package would boost the share of investment to 45 per cent of gross domestic product from 40 per cent – an “unheard of level that underscores the continued build-up of imbalances”. Additional reporting by Patti Waldmeir in Shanghai