Wu Jinglian: Local Governments' CNY17Trl Investment Unsustainable09-17 16:54 Caijing
Wu Jinglian, a leading mainland economist, warned Sunday that a string of stimulus moves taken recently by local governments to combat a slowing economy would risk posing long-term threats to the economy despite a potential boost in short terms.
"Local government's investments plans to prop up growth, which totaled as much as 17 trillion, according to incomplete statistics, are unsustainable with apparent exposure of problems," the renowned economist said in a keynote speech at a finance forum.
Local government officials are anxious to steer the economy back to previous high growth; otherwise they would found it tricky to solve fiscal and social, welfare problems, Mr. Wu said, based on findings of his recent trip.
He added though, the only way they could figure out is to expand investments. Many provinces have done waht they did in 2010 by introducing investments from centrally-administered state-owned enterprises, he said.
The lack of money will make such grand plans unsustainable, said Mr. Wu. "For instance, there is a province where GDP grows at 14 or 15 percent annually. But as inputs grow, last year's investment ratio in the region hit around 89 percent," he said, "[The ratio in the first half of this year] grew even higher to 120 percent."
The economist also took the construction of high-speed railways as an example to illustrate the misallocation of resources. China is still pouring resource and money into the high-speed railways, brushing off experts' warning that the country lacks the capacity of transporting goods, not passengers.
Debates are simmering over the slowdown in the world's second-largest economy, with some blaming government's intervene by artificially pouring money and resource into the market; and some still relying on the government's ability to mobilize resources to spur growth.
In the short term, such stimulus packages could help shore up a high growth, but they may have grave consequences in the long run as the weaknesses are exposed, Mr. Wu concluded.
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