Provincial GDP to outstrip nations

09:57, December 16, 2010      

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The economies of six Chineseprovinces will be as big as those of Spain or Canada by 2020, according to a recent study from British bank HSBC.

But the study also reveals dangers of what could be an overheating national economy.

Those provinces, Hebei, Henan, Shandong, Jiangsu, Zhejiang and Guangdong, are each estimated to have local GDPs over 1 trillion yuan ($150.13 million) by 2020, according to the report.

China's dazzling economic growth, fueled by GDP-measured performance and inter-regional competition, is expected to continue for at least the next five years, the report stated.

The country has set a target of 8 percent for its GDP growth, but actual growth might be higher than that.

Local governments have managed to beat Beijing's growth targets by a few percentage points every year since 1980.

For the 2011 to 2015 period, provinces have far more ambitious plans for the expansion of rail networks and clean-energy activities than those stipulated by the national target, the report stated.

One reason for this is that "to get promoted in China, you have to outperform your peers."

But the increased competition and over-investment among the local governments will most likely to lead to overcapacity in these areas, and that could result in more bad debt.

The report cited the 1,000-plus-kilometer Wuhan-to-Guangzhou bullet train as an example.

That line started operating earlier this year, but it is running at less than half of capacity.

The report asserts that the project will never make enough money to pay off the loans made to finance it.

As of June, local government debt amounted to 7.66 trillion yuan ($1.15 trillion), of which some 1.76 trillion yuan ($264.4 billion) has been classified as bad debt, according to the China Banking Regulatory Commission.

Strong regional GDP figures do not necessarily reflect the economic reality on the ground, Cao Yin, a consultant with Frost and Sullivan, told the Global Times.

Overly optimistic investments by local governments keen on tapping into central government-supported projects, such as clean energy, may result in huge waste, intense competition and overcapacity in these sectors, Frost and Sullivan's Cao said.

China's policy often lacks predictability, scientific planning and sustainability, he said.

Due to the low requirements for market entry, the photovoltaic solar industry in China has suffered overcapacity problems, said Adfaith Management analyst Fu Kun.

Source: Global Times
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