China's local governments boost investment spending
Local governments increase investment spending to meet growth targets as central authorities limit financing for economy
Regional governments on the mainland are starting to pull out their own stimulus cards to shore up growth as the central authorities limit aid for the economy.
Hebei province, whose 4.2 per cent first-quarter expansion pace was less than half that of a year earlier, will invest 1.2 trillion yuan (HK$1.5 trillion) in areas including railways, energy and housing.
Heilongjiang province, with 2.9 per cent growth that was the nation's lowest in the first quarter, will spend more than 300 billion yuan over two years in areas including infrastructure and mining.
Any borrowing to fund the investment risks exacerbating financial dangers from local government debt that swelled to about US$3 trillion in June last year. While Premier Li Keqiang is trying to expedite spending from existing budgets and avoid broad stimulus, provinces such as Hebei are facing bigger shortfalls on their own growth goals than Li is with the nationwide target of about 7.5 per cent.
"The motivation is there - currently GDP is still the key performance indicator for local officials," said Shen Jianguang, the chief Asia economist at Mizuho Securities Asia in Hong Kong.
The challenge for local governments was to find financing at a time when bank loans and shadow banking were constrained, Shen said.
The world's second-largest economy probably expanded 7.4 per cent in the April-June period from a year earlier, based on the median estimate of analysts surveyed. That would be the same pace as the previous period - the weakest in 18 months.
Industrial production may have increased 9 per cent last month from a year earlier, up from 8.8 per cent in May, economists said before a report from the National Bureau of Statistics.
First-half growth in fixed-asset investment, excluding rural households, probably maintained the same 17.2 per cent pace as in January-May.
Li said economic growth was in a reasonable range and he was confident it could remain at a medium to high level, according to the central government.
"Debt growth can possibly increase risks, but if the economy collapses, the problem would be even bigger," said Chang Jian, the chief China economist at Barclays in Hong Kong.
The authorities were balancing short-term and long-term issues, with the result of "maintaining the current growth pace and gradually paying off the old debts", Chang said.
Investment spending is not the only form of local stimulus. Hohhot in Inner Mongolia province and Jinan have eased home-purchase restrictions amid a nationwide property slump.
Local investment plans were relatively small and it was hard to judge whether the spending was already planned, said Wang Tao, the chief China economist at UBS in Hong Kong. "Increased investment in infrastructure and public services will be an indispensable part of the policy mix."
