China Grabs Funds Unused by Towns and Cities for New Projects

China Grabs Funds Unused by Towns and Cities for New Projects photo China Grabs Funds Unused by Towns and Cities for New Projects

Angry Chinese authorities have seized up to 1 trillion yuan (S$220 billion) from local governments who failed to spend their budget allocations, sources said, as Beijing seeks ways to stimulate economic growth that is at its slowest for 25 years.



The repossessed money will pay for other investments, said the sources, as economic growth looks increasingly likely to fall below 7 percent.

The huge underspend, linked to officials’ reluctance to splash out on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year.

Previously, local governments asked for money, money was given and then no one took action, said one source.

Last week, the green light was given by the NDRC for highway, railway and bridge projects worth $23 billion, in a sign that authorities were focusing on the infrastructure instead of deeper reforms to shore up growth during the short term.

A near 40 percent drop in China’s stock market in the summer and a shock two percent devaluation in the yuan further roiled investors and policy makers.

Between January to August, expenditure on energy conservation and clean technology rose by 22.7% compared to a year earlier, topping a 21.7% lift in social security and employment spending and 15.8% increase in education.

A flurry of economic data in the past week has fed those concerns and prompted Premier Li Keqiang to try to reassure markets that China is on track to meet its main economic growth targets.

Unsteady domestic and global demand, a wobbly housing market and cooling investment are expected to drag China’s official full-year growth to 7 per cent in 2015, the lowest in a quarter of a century, though some analysts suspect real growth levels are already much lower.

Price data pointed to increased deflationary pressure and lower-than-expected industrial output and investment figures this weekend raised further doubts.

Shanghai Composite Index fell 0.3 percent in thin turnover.

Among the reported changes are efforts to modernize state-owned enterprises (SOE), improve management of state assets and diversify their ownership structures through “mixed ownership” – or the introduction of “multiple types of investors” – ultimately meaning more private shareholders or capital.

Although China on Sunday unveiled particulars of how it will restructure SOEs, together with partial privatisation and business consolidation, “the plan has lengthy been anticipated, so curiosity towards the theme might be brief-lived”, he stated.

There was little reaction to news that Beijing intends to overhaul its vast state-owned firms in a bid to give a boost to the world’s No. 2 economy, while an earlier rally in some riskier assets petered out.

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