Chinese city in $130billion economy stimulus plan: paper

BEIJING Thu Jul 26, 2012 12:47am EDT

A man walks past a residential construction site with his luggage as he speaks on a mobile phone in Changsha, Hunan province July 9, 2012. REUTERS/Stringer

A man walks past a residential construction site with his luggage as he speaks on a mobile phone in Changsha, Hunan province July 9, 2012.

Credit: Reuters/Stringer

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BEIJING (Reuters) - The government of Changsha, the capital of central China's Hunan province, has launched an 829 billion yuan ($130 billion) investment stimulus program to bolster the local economy, state media has reported.

The money would be spent on 195 projects, including airport, subway and urban infrastructure facilities, as well as developing energy efficient industries, said a report by the official China News Service on Wednesday.

The government of Changsha, a city known for its machine-making and non-ferrous metal industries, would also speed up financial reform and innovations, said the report, which provided no details about how the program would be financed.

The China News Service paraphrased Chen Runer, the Communist Party secretary of Changsha, saying that economic pressure on the city could not be ignored, despite relatively stable growth in the face of global headwinds, and it was time for initiative.

There was no reference to the program's existence on the government of Changsha's website on Thursday.

Zhang Zhiwei, chief China economist at Nomura in Hong Kong, calculates that the headline number on the stimulus plan is worth 147 percent of Changsha's nominal GDP in 2011, or 1.8 percent of China's national economic output.

Even if spread over five years, Zhang says the implied investment would be equivalent to 46 percent of total annual fixed asset investment in Changsha.

FINANCING QUESTIONS

Skeptics say a program on that scale is implausible and could not be properly financed with China's banks still nursing bad loans worth an estimated 2-3 trillion yuan after local governments racked up debts of 10.7 trillion yuan in the wake of Beijing's nationwide stimulus program unveiled in 2008.

"Indeed financing is a problem, we expect projects to be financed by banks, local government and the central government collectively, but banks will likely be the main source," Zhang said in a note to clients.

The Changsha move comes less that two weeks after China revealed that its economy experienced its slowest three months of growth in more than three years, with the April-June period's 7.6 percent annual expansion only just above Beijing's target rate of 7.5 percent.

China's economy is on track for its slowest full year of growth since 1999, albeit at a rate that economists in a Reuters poll forecast at 8 percent.

The International Monetary Fund said in a report published on Wednesday that it expected China to achieve a soft economic landing and avoid a sharp lurch lower.

To bolster growth, China has been "fine-tuning" policies since autumn and accelerated the pace recently, cutting interest rates twice in June and early July, fast-tracking investment projects and encouraging energy-efficient consumer spending.

Beijing has so far, however, refrained from labeling any of its policy efforts as outright stimulus.

China's Communist Party leadership remains acutely sensitive to the inflationary and speculative forces unleashed by the 2008 program which the government is still struggling to bring back under control, particularly in the real estate sector.

(Reporting by Aileen Wang and Koh Gui Qing; Editing by Nick Edwards)

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