China's $600 billion stimulus is dotted with questions

By Simon Rabinovitch - Analysis

BEIJING (Reuters) - There is no doubt that China's near-$600 billion economic stimulus package is gigantic but, like so much in the opaque country, it is shrouded in ambiguities that complicate any assessment of its likely impact.

First and foremost, the size of the stimulus may be smaller than advertised.

Announcing the package on Sunday night, the government billed it as 4 trillion yuan ($586 billion) in extra spending, or roughly 15 percent of this year's estimated gross domestic product. Adjectives such as whopping or stonking come to mind.

Several qualifications, though, are necessary.

The money is to be spent by the end of 2010, meaning it will be spread over nine quarters rather than blasted out in one shot. That cuts the stimulus to about six percent of GDP per year.

Then there is the question of how much is actual new spending.

"The stimulus package is big, but it's actually a combination of a lot of things that have already been announced," said Ken Peng, a Citigroup economist in Shanghai.

For example, Beijing said it would devote 20 billion yuan to investment in Sichuan province and other areas of the country devastated by the earthquake earlier this year. But as the package announcement itself indicated, that was simply speeding up money earmarked for post-quake building next year.

It "is a 'gross' concept in the sense that some of the investment would have been made without the stimulus package anyways," Yu Song, an economist at Goldman Sachs, wrote in a note to clients.

Officials have been flagging measures to pump up demand since growth slowed unexpectedly sharply to 9.0 percent in the third quarter from 10.4 percent in the first half.

The Ministry of Railways had declared plans for 2 trillion yuan of spending between 2006 and 2011, and official media have reported that the Ministry of Transportation would spend an additional 5 trillion yuan in the next three years or so.

Surely some of that was included in the headline figure trumpeted as the stimulus, said Ting Lu, an economist at Merrill Lynch.

Lu calculated that about 2.4 trillion yuan was actually new spending -- and much of that was simply ascribing a concrete figure to investment promises made weeks ago, such as building better rural roads and more medical clinics.

FINDING THE MONEY

Another question is how China will come up with the cash.