Crossover: Local governments across China launch new stimulus plans

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Local governments across China have launched a series of new stimulus plans, aimed at reaching the economic growth rate target set at the beginning of this year.

The measures have been triggered by the downside risks of the Chinese economy, deteriorating global growth, and over-cooling of the real estate market. For more on this issue, we are joined by my colleague Li Kefu at the studio.

Q1: Tell us more about these stimulus packages released by local governments in China. How much money is involved and what are the focuses?

A: Well, Changsha, the capital of Hunan province, will inject 829 billion yuan into 195 large projects and 155 medium-sized projects, to boost its GDP growth. The investment will be mainly in infrastructure construction, including airport and urban transit projects. However, the 2011 fiscal revenue for this second-tier city in Central China was 66.8 billion yuan. Therefore, Changsha’s 829 billion stimulus plan will cost it ten years of fiscal revenue.

And Changsha is not alone. China’s Southwestern province of Guizhou, is expected to announce its 3-trillion yuan stimulus package focused on developing its tourism sector...remember, the last major round of national stimulus packages in 2008 was 4 trillion yuan.In addition, Guizhou’s fiscal revenue in 2011 only reached 13.3 billion yuan. When asked how to finance these giant stimulus plans, some local governments say that bank loans and local government bonds will be big contributors.

Q2: What’s are the differences between the stimulus plans announced by local governments and the national-level stimulus package of 2008?

A: The 4-trillion yuan stimulus package was announced by the Central Government in 2008 as an attempt to minimize the impact of the global financial crisis. This time, the stimulus plans were announced by different provinces and cities across the country with difference approaches.

For example, some eastern provinces like Zhejiang announced that their stimulus packages will be focused on boosting domestic consumption, while many central and local governments’ plans are heavily relying on investments.Speaking of the 4-trillion yuan stimulus package in 2008, it did create a period of strong growth, but it also left many problems, for example, the over-heating of real estate market and the growing inflation across the country. The results of this new round of stimulus packages will remain to be seen.