The city is urged to invest heavily to ward off the Sars gloom Shanghai will invest a record 230 billion yuan (HK$217 billion) in fixed assets this year as the central government orders the nation to spend its way out of the Sars crisis, state media said yesterday. The spending target - half of which will be devoted to infrastructure - has renewed worries over the mainland's widening budget deficit and the risk of 'white elephant' projects. The newly created State Development and Reform Commission recently ordered local governments to boost spending on infrastructure and maintain rapid growth in fixed asset investment to spur the economy, the China Securities Journal reported. Fixed asset investment is seen as a key measure of state spending. The government will support massive infrastructure works like the Three Gorges Dam, the west-east natural gas pipeline, the Qinghai-Tibet railway and the project to divert water from the south to the arid north, the newspaper said. Among the first to heed the call to spend more, Shanghai will pour 115 billion yuan into infrastructure projects, up from 112 billion yuan last year, local media said. Of total infrastructure spending, 75 billion yuan will flow to property development, up from 72 billion yuan last year. Shanghai has made low-cost housing a priority. Investment for industry is forecast at 75 billion yuan this year, up from 68.8 billion yuan last year. The city will direct funds towards the chemical, automotive and steel sectors. It was not specified where the remainder would be spent. Analysts warn increased state spending on infrastructure and financial rescue packages for companies hurt by Sars will boost expenditure while weaker consumer spending will hurt tax revenue, which could cause the government's budget deficit to widen. In an interview with Xinhua this week, Finance Minister Jin Renqing said tax breaks and financial bail-outs introduced because of Sars could affect revenue targets. 'The introduction of any favourable policies will have a definite impact on fiscal revenue and the creation of expenditure,' he said. The mainland forecast a record 2003 budget deficit of 319.8 billion yuan in March, before the impact of Sars was apparent. 'The budget deficit is still considered to be within a safe limit,' said Paul Schymyck, regional economist for IDEAglobal in Singapore.