Published on 11.10.2012

Provincial dreaming: China's local stimulus plans

The recent flurry of investment plans announced by provincial governments has stirred up expectations that China will see another boom in spending. The more useful projects, such as the urban metro systems approved in the first week of September by the National Development and Reform Commission (NDRC), will probably go forward. However, the central government's concerns about local government debt and the health of the banking sector will persuade it to exercise a much greater degree of caution than it has previously. Without top-level political support, provincial plans are unlikely to materialise into a repeat of the investment surge seen in 2009-10—or, in turn, the double-digit growth rates that accompanied them.

No new stimulus?

China's decision in 2008 to unveil a multi-trillion yuan stimulus package managed to push up GDP growth in the midst of a global economic downturn. However, the prudence in doing so is now being questioned. Reported non-performing loan rates at China's state-owned banks remain low, but it is likely that many of the poor quality loans taken out by local government financing vehicles are simply being rolled over. At the end of 2010 local government loans were stated at Rmb10.7trn (US$1.7trn), and around Rmb1.8trn in repayments are reported to be due in 2012.

Full article at