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English>>China Business

Avoid big stimulus plan

(China Daily)

13:19, August 07, 2012

Local governments now serve as a better barometer for monitoring the economic winds.

While investors are waiting for the central government to give clearer signs on whether it will launch a powerful stimulus package as it did four years ago, local governments have taken the lead in announcing massive investment plans.

Guizhou province, for instance, will reportedly launch a 3,000-billion-yuan ($473 billion) investment plan this month to stimulate local tourism, its pillar industry. Eastern and central cities such as Ningbo in Zhejiang province, Nanjing in Jiangsu province and Changsha in Hunan province have rolled out impressive programs to boost local growth.

In late July, the State Council issued a guideline on promoting the central region's economy, signifying that the central authorities have given the green light for more investment projects.

But not all local stimulus programs this time are gigantic investment plans. Ningbo's program involves reducing fees and cutting taxes for the corporate sector to increase industry output, though it also plans to increase investment. Nanjing's policy is mainly aimed at stimulating local sales in sectors such as real estate and cars.

Changsha, however, plans to invest as much as 829.2 billion yuan in hundreds of major projects by 2015 even though its annual fixed asset investment is only about 350 billion yuan, including both public and private investments.

In these times of economic slowdown, a proper increase in investments will help anchor the economy. But it has to be done cautiously because the stimulus package four years ago has taught us a lot of lessons.

Despite instantly boosting economic growth, the last investment boom has left behind rising inflation, increasing local government debts and soaring housing prices. With already ample liquidity in the market, partly a result of the last stimulus package, big nationwide investment programs could cause more serious problems this time.

Although the economy needs to be stabilized promptly, a disproportionately massive package could create serious problems in the future.

Instead, the government should cut taxes and ratchet up consumption. Even if it invests in big projects, they should be related to improving people's livelihoods, rural areas and public facilities in cities, which can lay the foundation for sustainable growth.

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