Li Keqiang

Key Chinese cities and provinces set to receive stimulus - on the quiet

Agbank agreement to provide HK$314b loan to Shanghai is sign of 'unofficial' financial boost

PUBLISHED : Monday, 12 August, 2013, 12:00am
UPDATED : Monday, 12 August, 2013, 7:23am

The mainland government is quietly offering financial stimulus to key cities and provinces to help them maintain local economic growth.

This is in addition to Shanghai taking up a huge loan from a state-owned bank to set up the first Hong Kong-like free-trade zone on the mainland.

Government and banking industry sources familiar with the situation told the South China Morning Post that Agricultural Bank of China (Agbank), one of the big four state lenders, signed an agreement with the city government last week to provide loan credit worth 250 billion yuan (HK$314 billion) - equivalent to about 12.5 per cent of Shanghai's GDP for last year.

This year senior government officials have repeatedly insisted that Beijing will not launch any nationwide economic stimulus - as it did in 2008 - to ensure that the world's second-biggest economy will not see a significant slowdown. But the sources, who declined to be named due to the highly sensitive nature of the matter, said Beijing did not rule out the possibility of "unofficial economic stimulus" to help key economies like Shanghai boost their growth.

Other banks may quickly copy Agbank's loan plan for Shanghai and support other areas such as Guangdong province, where the export industry has been badly hit, the sources say.

Such a huge loan arrangement by one state-owned bank for a mainland city like Shanghai is considered rare.

Shanghai's continued growth is strategically important for the central government to ensure that the country can meet this year's 7.5 per cent growth target.

In late 2008, Beijing announced a massive 4 trillion yuan stimulus package to help keep the country's economy growing during the financial crisis in the West. But it came under fire from many scholars and even some government insiders for being ineffective.

According to an internal government memo seen by the Post, Agbank said it would support "the constructions of key international tourism and resort projects in Shanghai, in particular the Disneyland project" and it would also "play an active role in the construction of Shanghai's free-trade zone".

The bank confirmed to the Post that it had signed an "all-aspect strategic co-operation" agreement with Shanghai, but declined to elaborate.

For a related story about how the loan deal happens, please read here.