Can big local projects effectively drive growth?

(China Daily) Updated: 2012-08-31 10:00

A1

Many investment projects have been selected in each region and local area. Some of them are already on the way and need additional financing. For example, it is said that in Hunan province alone, it has been decided to invest the equivalent of $130 billion over five years in 195 projects. The numbers are astronomical. Due to the centralized Chinese system, local decisions require central government agreement. It has therefore been decided to let the regions launch a stimulus package, which should help in this period of economic uncertainty.

A2

Apparently this figure is true. Whether the local governments spend the whole amount or not is open to question.

As far as the type of projects are concerned, as an example, Hunan province has indicated that it will invest in or build 10 core townships, 10 infrastructure projects including transport systems, 10 film-production districts, and 10 industrial development projects. Local governments should obviously continue to improve the local infrastructure - airports, roads, water treatment and energy plants, which is what they seem to be doing - and select with great care the industry sectors in which they will invest. Needless to say, I always believe that partnerships with independent companies are always best for governments when they invest in industrial sectors.

A3

Obviously the question is where the money comes from, and whether local governments will be able to repay, with their own resources - mostly fiscal revenues. Whether it will work is unclear, but an initial impression is that the amounts involved are so high that it will be difficult or impossible, and that the central government will need to bail them out, as it did in the past.

A4

There is no doubt that it is a good idea to invest locally. However the projects should be chosen with great care. In addition, I do believe in international cooperation, and this should be strengthened with China entering into more long-term cooperation agreements with other countries.

A real effort should be made by China to explain what China is today, to help people better understand that there is plenty of room for partnership with China.