China Enterprise News reported that, in spite of the central government’s efforts, local governments are increasing their expenditures and banks are funding the local governments through financial management products.
According to the National Bureau of Statistics, none of the provinces, except Anhui, reached their GDP goals in the first quarter of 2014. Heilongjiang Province had the lowest GDP growth rate. At 4.1 percent the rate was less than half of the estimate. As of the present, the provinces of Guangdong, Hainan, Hebei, Heilongjiang, and Guizhou, as well as Tianjin City, have announced grand investment plans. When added together, local government investments total more than 10 trillion yuan.
With few local projects eligible for central government funding, the sources of funds for these grand investment plans remains to be resolved. Tight bank credit and a sluggish land market do not offer any hope. Even the recent pilot program that allows local governments to issue and service their own bonds cannot cover the gap. The 14 billion yuan in bonds that Guangdong plans to issue is miniscule compared to the investment plan of 3.67 trillion yuan it announced on April 9, 2014.
However, according to sources from banks, the banks have been funneling funds to local governments through financial management products such as loan trusts. For the local governments, the cost of these funds is higher than regular bank loans. However, the approval process is not subject to policy changes and, once approved, the proceeds are transferred promptly to the local governments.
Source: China Enterprise News reprinted by Xinhua, July 15, 2014