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Big thinking but no stimulus rerun
The announcement last week of new projects worth Rmb830 (US$130 billion) by the authorities in Changsha, capital of Hunan province, shows that Chinese officials are resuming the habit of thinking big after the tightening imposed by Beijing over the last couple of years. Soon to follow is the Rmb3 trillion (US$180 billion) plan by Guizhou to develop its tourism industry and turn itself into the “National Park Province”.
At the same time the Ministry of Railways announced that its fixed asset investment target for this year has been raised to Rmb580 billion (US65 billion), 12 per cent more than the level set at the start of the year. The State Council and the NDRC have agreed that railway bonds for 2012 can exceed the 40 per cent debt-to-net-assets ratio applied to state companies.
Meanwhile, though argument continues about who is to blame for the high death toll from this month’s floods in Beijing, it appears inevitable that a large chunk of money will have to be allocated to improve the capital’s outdated drainage system.
This might all be taken as a harbinger of a major new round of spending on the scale seen in the programme launched at the end of 2008. But there are reasons to think otherwise.
The economy is certainly slowing down but policymakers agree that they need to keep close control of measures to buck up growth. Having established stronger central control after stimulus spending ran out of control in 2009-10, the authorities in Beijing are not going to let go again, either to provincial governments or to stronger spending ministries.
Look more carefully at the recent announcements and they fall into a more sober perspective. Changsha may have big dreams but it lacks the necessary cash. Even more extreme is case of the “National Park Province” plan, spending on which would amount to five times Guizhou’s 2011 GDP. The railway expenditure merely reverses big cuts made after the high-speed crash outside Wenzhou and the dismissal last year of the free-spending minister. As for the drains of Beijing, the authorities are stressing that the recent rainfall was a once-in-a-decade – or even longer – event.
China will continue with stimulus measures but they will be “fine-tuned”, as Wen Jiabao says, and regulated from the centre as laid out in our blog posting last week after the latest PMI number. The aim is to achieve more stable growth after the volatility of the last five years. Projects are being ranked according to external criteria – commercial bank sources say credit is being restricted to those which qualify among the best 100. Regional officials will go on dreaming and scheming but, short of a serious further downturn, control will remain the watchword for the rest of the year.