2015-09-14

Why Are You Not Spending? Central Govt Seizes Local Cash

Reuters: China seizes up to $157 billion of unspent local government budgets - sources
Angry Chinese authorities have seized up to 1 trillion yuan ($157 billion) from local governments who failed to spend their budget allocations, sources said, as Beijing seeks ways to stimulate economic growth which is at its slowest for 25 years.

The huge underspend, linked to officials' reluctance to spend 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.
How screwed up are the centrally planned local economies that officials cannot spend money in a legal way? This excuse mainly gets play in the Western media is authoritarianism and the anti-corruption campaign, but I don't buy it. I'm sure some Chinese officials will say it is the reason because they don't like the policy, but it really has no bearing on implementing reforms and spending money in a transparent way.

A better explanation for the inertia is officials don't understand how to carry out reforms, or don't know how to spend money and keep within government orders to stop interfering in the local economy.

From 一举两得: Relief for Local Govt Also Boost Financial Sector:

Back in November 2013, Li Keqiang was telling governments to get out of the economy:
China Premier Li Keqiang said local governments should stop directly investing in or setting up companies “in principle,” according to comments released a day before leaders gather to discuss economic policy.

Allowing local authorities to invest in companies or to intervene in their operations can ‘easily’’ lead to monopolies and market barriers, Li was cited as saying at a Nov. 1 meeting, according to a statement posted on the central government’s website today.

Or Li reminding them this year:
At one meeting, on May 30, Li reportedly pounded the table as he blasted local officials for inertia in carrying out central government directives.

He accused departments of micromanaging the economy and wasting time and resources examining and approving projects and deals that were entirely commercial matters unrelated to national security or strategic industries.

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