A 4 trillion yuan splash, but a lot less 'real water'

You have to hand it to the mainland's leaders; they certainly made a splash with the announcement on Sunday of their 4trillion yuan (HK$4.54 trillion) economic stimulus package.

The headline sum is truly enormous. To put it into perspective, 4 trillion yuan is equivalent to 16 per cent of the country's entire economic output last year. Or, to look at it another way, that's enough money to build nine South-North River projects, to fund the Beijing Olympics 14 times over, or to build 20 Three Gorges Dam projects.

It is also four times the size of the US$150 billion round of tax cuts rolled out at the beginning of this year by President George Bush in an attempt to stimulate the United States' far larger economy.

Certainly, investors were delighted with the size of the package, bidding stock markets in Asia and Europe sharply higher in response to the news.

Their euphoria may prove short-lived. Although the headline sum is huge, there is considerable doubt about how much of it consists of what analysts examining Japan's supplementary budgets of the late 1990s used to call 'real water', or genuinely new government spending.

According to Sunday's announcement, the 4trillion yuan will be doled out between now and the end of 2010 over 10 different fields.

A closer look at the proposed spending plans and tax cuts, however, indicates the headline amount is likely to include considerable sums already earmarked for existing programmes that would have proceeded anyway.