Fujian to spend 326 billion yuan on projects to boost ties with Taiwan

Fujian plans to spend 326 billion yuan (HK$406 billion) this year to boost cross-strait ties with Taiwan, but analysts are divided on whether the coastal province's heavy spending is sustainable.

Sectors to be invested in include agriculture, irrigation, transport infrastructure, energy, urban projects, environment and services.

"Three hundred billion yuan is a lot. The Chinese government wants to build up Fujian to foster closer links with Taiwan. This is partially a political move," said Tan Kok Loon, the general manager of the Marco Polo hotel in Xiamen, a port city in Fujian.

The province would increase construction of port terminals to boost passenger shipping connections with Taiwan, including links from Xiamen to Taiwanese ports such as Jinmen, Keelung and Taichung, the website said.

Tan said a new financial centre was being built in Xiamen to attract Taiwanese financial companies. About 50 to 60 per cent of the tax paid in Xiamen came from foreign investors, he said.

"Taiwan is still important to Xiamen. A lot of Taiwanese companies are here," Tan said.

Taiwan is the second-biggest investor in Fujian after Hong Kong, according to Invest Fujian China, the province's investment website.

The Fujian government aimed to have the urban proportion of the province's population rise to 75 per cent in 10 years, Tan said.

"A lot of roads are being built to connect villages to cities," he said.

Another motive for Fujian's heavy spending was to keep the growth of its economy at 7 to 8 per cent this year, Tan said.

"The motivation is not to build projects that are financially sustainable but to get short-term GDP targets. [Mainland] banks lend based not on whether the projects are economically viable, but on the political position of the borrower," said Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing.

"By the time the bill comes, the officials would have been promoted to another post. There is little accountability that causes people to be discriminating about what projects should be funded."

Fujian's fiscal revenue last year rose 15.9 per cent to 300.9 billion yuan, according to the government website, close to the sum the province plans to spend this year.

Much of local governments' fiscal revenue came from land sales, which was risky, as land sales fell significantly last year, Chovanec said.

Land sales on the mainland dropped 14.6 per cent last year, according to the Ministry of Land and Resources.

"That is why people are concerned with local government debt, that the cash flow will not be sufficient to pay for the projects," Chovanec said.

If local governments failed to generate sufficient fiscal revenue to repay loans, their loans tended to get rolled over, but this merely delayed the debt problem, he said.

However, Ivan Chung, a senior credit officer at Moody's Investors Service, said the debts of Fujian and the country were manageable. The central government's debt to GDP ratio was 30.7 per cent in 2011 and is expected to have dropped to 28.8 per cent last year, according to the credit rating agency.

The government's financial strength was very high, and its debt was low compared to most countries, a Moody's report said.

However, a serious deterioration in cross-strait relations would be negative for the nation's credit rating, it said.