Tuesday, July 31, 2012

More Chinese regions propose mega-stimulus

While China’s central government is reluctant to start a stimulus programme comparable to the previous RMB4 trillion one, and despite the fact that the previous massive stimulus is widely regarded as a mistake, local governments are considering stimulus like last time.
Since Premier Wen put growth back to the top priority, while stopping short of massive stimulus, many little things have happened, ranging from plans to bring future investment forward to cutting interest rates twice. Now, local governments are proposing some massive stimulus on their own.
International Finance News has a summary of what kind of growth stabilising measures local governments are considering. For instance, Ningbo and Nanjing have announced plans to stimulate consumption and rebalance their economic structures. Meanwhile, Guizhou will announce plans to develop ecotourism which may include some RMB3 trillion of investment if implemented in full (we have no idea why such plans require RMB3 trillion, we speculate that they want to clone dinosaurs *). Last week, I mentioned that the Changsha government has an investment plan that amounted to 147% of the city’s GDP if implemented in full.
Of course, no one would believe that some of these massive plans will have any chance to be implement in full (local governments routinely overstate their plans when they announce them). The RMB3 trillion investment programme by Guizhou, for instance, sounds totally unrealistic, especially when you consider that the planned RMB4 trillion stimulus last time was supposed to be spent throughout the country while this one is planned for a single province. Changsha’s plan is also extremely large compared to the city’s economy.

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