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'No debt worries' in Changsha stimulus: official

(Xinhua)

15:05, August 06, 2012

CHANGSHA -- Changsha city officials on Friday defended the government's whopping $130 billion investment plan as necessary for its urban development, adding that financial support will be given by both banks and local governments, as the public is concerned about possible insolvency risks.

Zhou Lianjun, deputy head of the financing office of the Changsha municipal government, said there is "no need to overreact to debt worries".

He said the investment plan will take five years to fully implement. Many of projects in the plan are infrastructure projects relating to township construction in counties like Changsha, Liuyang and Ningxiang, which are on the list of 100 top counties in terms of economic strength.

Changsha, an industrial city in Central China's Hunan province, saw its GDP grow by 12.9 percent year-on-year to 289.6 billion yuan ($45 billion) in the first half. Infrastructure investment accounted for 65.6 percent of the GDP.

The city government announced last week that the stimulus plan includes 195 projects ranging from airport expansion and road construction to waste treatment and urban improvement projects.

The plan is being seen as a prelude to local government stimulus programs aimed at ramping up investment amid pressure created by the country's slowing economic growth, which expanded by 7.6 percent, a three-year low, in the second quarter.

Guizhou province and Xi'an, the provincial capital of Northwest China's Shaanxi province, have created similar investment plans to boost infrastructure construction.

Chinese economists, including outspoken critic Lang Jianping, have described the local government's stimulus plan as a "cardiotonic" injection to "an ailing patient", meaning that the debt-fueled solution carries the risk of bringing the slowing economy into a deep recession.

According to a report from the Hunan provincial audit office, the province has entered a debt repayment peak during which it will need to repay government debt totalling 118.2 billion yuan.

Zhou said that if the banks are comfortable with the government's ability to pay back its debt, then there should be no need to worry about possible insolvency.

However, Li Rui, a professor of economics at the Beihang University, said incumbent local governments should be careful about spending a lot of money on large investment projects with little yield, as future governments may become indebted.

Li said the central government should cap local governments' debt levels based on their respective GPDs, adding that State-owned commercial banks should be given freedom in choosing government-sponsored investment projects in order to keep insolvency risks in check.

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