China’s plan to spend US$6.5 trillion on urbanization to bolster the economy is running into snags, sources close to the government said, as top leaders fear another spending binge could push up local debt levels and inflate a property bubble.
Chinese Premier Li Keqiang (李克強) has rejected an urbanization proposal drafted by the National Development and Reform Commission (NDRC), seeking changes to put more emphasis on economic reform, according to the sources, who are familiar with the matter.
Many local authorities have already lobbied to get funding for projects, ringing alarm bells among top leaders in Beijing.
State-owned China Development Bank (國家開發銀行) recently pledged to lend 150 billion yuan (US$24.47 billion) to southeastern Fujian Province to support its urbanization and channel 30 billion yuan into urban projects in central Anhui Province, according to Chinese media.
“The urbanization plan could be delayed. Top leaders have seen potential risks if the program cannot be kept on the right path,” said an economist at a top think tank which advises the Cabinet.
“The leadership aims to jumpstart reforms, but local governments see this in a different perspective — they view this as the last opportunity to boost investment,” said the economist, who requested anonymity due to the sensitivity of the issue.
China plans to spend about 40 trillion yuan to bring 400 million people to its cities over the next decade as leaders such as Li try to sustain economic growth that slowed to a 13-year low of 7.8 percent last year.
Li, the driving force behind urbanization, has turned more cautious following warnings from leading academics over the risks, the think tank sources who are involved in the policy discussions said.
The NDRC is racing against the clock to amend the long-term plan in a bid to publish it by the end of next month.
Beijing is still nursing a hangover from its 4 trillion yuan stimulus package launched in 2008 to counter the global financial crisis, which left local governments under a mountain of debt and sent house prices rocketing.
To fund the urbanization plan, local governments would issue long-term bonds to finance spending on roads, housing and social safety nets, Reuters reported in March, quoting sources with ties to the leadership.
However, a fiscal overhaul is needed because local governments do not have steady tax revenues to back the issuance of bonds. Under China’s tax structure, in place since 1994, the central government gets most receipts, while local governments do the spending, forcing them to rely on land sales for survival.
To support the process, Beijing needed to overhaul its land and tax codes, as well as free up the rigid residency registration, or hukou (戶口), system to give migrant workers access to education, health and other services where they work, experts have said. Li wanted more detail on these sorts of reforms in the plan, the sources said.
“The focus of the urbanization drive should be land and hukou reforms. It’s doomed if China continues to rely on local government spending to support urbanization,” said Yi Xianrong (易憲容), senior economist at the Chinese Academy of Social Sciences, a leading government think tank in Beijing.
Ratings agency Fitch estimates local government debt at 13 trillion yuan, or a quarter of GDP. Government data puts the number at 10.7 trillion yuan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) revenue jumped 48 percent last month, underscoring how electronics firms scrambled to acquire essential components before global tariffs took effect. The main chipmaker for Apple Inc and Nvidia Corp reported monthly sales of NT$349.6 billion (US$11.6 billion). That compares with the average analysts’ estimate for a 38 percent rise in second-quarter revenue. US President Donald Trump’s trade war is prompting economists to retool GDP forecasts worldwide, casting doubt over the outlook for everything from iPhone demand to computing and datacenter construction. However, TSMC — a barometer for global tech spending given its central role in the
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
RSS