New stimulus targets economic upgrade

Mainland's lighter dose of investment spending focuses on economic reform and infrastructure improvements rather than just raw growth

PUBLISHED : Wednesday, 18 September, 2013, 12:00am
UPDATED : Wednesday, 18 September, 2013, 3:08am

In the centre of Nansha, an industrial hub of the Pearl River Delta, miles of paved roads are being pulled up to make way for the construction of a metro track, which will become an artery of a nationwide rail network.

The mainland is spending 700 billion yuan (HK$882.6 billion) annually on its railways as it aims not only to boost economic growth but create more convenient transport connections.

The spending illustrates Beijing's approach to nationwide macroeconomic policy, a relatively lighter dose of economic stimulus compared with the four trillion yuan spending spree the central government unleashed in 2008 shortly after the demise of Lehman Brothers.

"The objectives of the existing macroeconomic policies and those in 2008 are different," Mizuho chief economist Shen Jianguang said. "Last time, it was aimed at stimulating growth but this time it is more about improving the economic structure."

Shen pointed out that the mainland's gross domestic product growth rebounded to 10.4 per cent in 2010 from 9.2 per cent in 2009 and 9.6 per cent in 2008.

Economists and academics widely expect China to deliver 7 to 8.5 per cent GDP growth this year, compared with the central government's targeted 7.5 per cent growth and the International Monetary Fund's (IMF) forecast of a 7.75 per cent rise. The IMF anticipates growth will taper off to 7.7 per cent next year.

"China is preparing for a more solid economic foundation by 2020 to cushion the adverse impact of its demography," said Thomas Chan Man-hung, head of the China Business Centre at Hong Kong Polytechnic University, referring to the mainland's ageing population.

He said the mainland economy was on the path of more stable growth as the focus was more on building government-subsidised housing and investing in rail infrastructure.

In comparison, the previous stimulus programme split the four trillion yuan equally between real estate and rail investments.

However, the spending spree left behind mountains of debt for local governments and a property bubble. Some local governments such as Zhangmutou in Dongguan were so cash-strapped that they have been teetering on the brink of bankruptcy since last year.

A BBVA research report recently showed China's corporate sector debt is among the highest in the world. As of the end of last year, the mainland's non-financial sector debt stood at 107.9 billion yuan or 207.7 per cent of its GDP. Local government debts accounted for 31.9 per cent of GDP last year, BBVA estimated.

Despite Beijing's concerted efforts to spur economic growth, some economists were confident that the local government debt problems would not worsen.

Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, said the mainland was more determined to upgrade from an export-oriented economy to a domestic consumption-fuelled one.

Earlier this month, President Xi Jinping said that China must press ahead with structural reforms to solve the problems hindering long-term economic development despite the likely trade-off of slower growth.

On Monday, the State Council said it would accelerate construction of urban infrastructure projects such as underground sewage and household waste treatment, gas pipes and heating systems, and public transport and power grid upgrades.

"These are much needed investments in public utilities and western parts of the country, which will spur higher quality urbanisation and domestic demand of city dwellers," Yi said. "Infrastructure will remain a key driver in economic growth in the next five to 10 years."