China's stimulus spending created infrastructure projects that may not be needed

[LiberalFighter]

Source: Washington Post

BEIJING -- In late 2008, with the financial crisis rippling through the global economy, China's leaders embarked on a two-year, $586 billion spending program to try to stave off a recession and keep the Chinese economy growing.

Unlike in the United States -- where President Obama's large stimulus plan became the subject of protracted congressional wrangling and was shaped to include tax cuts and aid to states -- Chinese leaders followed a simple mandate: Spend and build.

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Economists estimate that out of the 4 trillion yuan (about $586 billion) stimulus package, the central government spent just over a quarter of the money, with the rest coming as bank loans to local governments. Also, many local governments took out additional loans on their own to finance public works projects. As a result, economists said, local governments are now sitting on a total potential debt bomb of 7 trillion to 11 trillion yuan.

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"It's wasteful investment in some areas," said Andy Xie, a Shanghai-based economist. "The issue is not overbuilding. It's that lots of places should not develop at all. . . . A lot of local governments are developing places where people don't want to go."

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2010/06/17/AR2010061705794.html?hpid%3Dtopnews&sub=AR

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There is a difference between building infrastructure that is needed and when it is not needed.

[mbperrin]

1. So the guy from Shanghai is worried that a small town in China now

has a one lane airstrip?

Okay.

[bluestateguy]

2. Japan did that a lot in the 1990's

They built some things. Some people got jobs. Now the cities are flooded with public works projects that don't really do much other than stick out like a sore thumb.

[Fearless]

3. So this would be a "bridge loan to nowhere???"

Hahahahaha!

:rofl:

[jwirr]

4. China has a bridge to nowhere?

[bossy22]

5. not surprising

China spent close to what we spent in total (stimulus, buying up assets); the only difference is that we are much larger than them economically

This concern is not new....a while back a few econs starting proposing the idea that china was hiding a huge amount of debt from the public books. This was mostly intra-governmental debt but the issue with the debt was it was believed to be mostly soured; mainly from bad real estate decisions. China overbuilt and is starting to overheat. There was a reporter about 2 years ago who went to a few major chinese cities and visited completely empty 50 story skyscrapers- that had been on the market for rental for over a year. Plus there were those "levittown like towns" propping up all over china but not finding any tennants

[w4rma]

6. Better to spend resources building too much than to waste them deciding how not to build enough.(nt)

[fatbuckel]

7. That happened in my town;they built new schools for less students,

and now they can`t pay for maintenance and operations.