In Beijing, a Slice Of Opportunity
Applicants Solicit Stimulus Money

By Lauren Keane
Washington Post Foreign Service
Friday, November 21, 2008

BEIJING -- They have been coming here from all over China, businessmen and local officials looking for a slice of the Chinese stimulus.

But there may be less money to go around than they had initially hoped after the $586 billion package was announced Nov. 9, and what is available will not necessarily be spent on new projects, economists say.

Only a quarter of the total stimulus package -- trumpeted by the Communist Party as a major effort to rev up an economy straining amid the global slowdown -- will come from the central government, according to officials. Another quarter is supposed to come from cash-strapped local governments, with state-owned enterprises and banks expected to fund the other half.

Spending the money may not turn out to be so straightforward, either. Beijing has outlined 10 priorities, including railways, roads and affordable housing. Yet analysts say some of those projects -- rebuilding the Sichuan earthquake region, for example -- would probably have been funded even without the stimulus.

"It seems like the plan was rushed out the door before they had completely thought it through," in order to keep investors confident, said Shen Minggao, chief economist at Caijing magazine, China's leading independent financial publication.

Shen said the plan could be a financial challenge for local governments, which last year derived an estimated 40 percent of their revenue from land sales.

"What's not transparent yet is exactly how the funds will be raised to support those programs, especially when local governments are facing a downturn and far lower profits from land sales," he said. "If it turns out that the central government has to lend more to local governments to help them do this, it would effectively lower the overall stimulus total."

That the stimulus plan may be less than it originally seemed has not deterred hopeful applicants from descending on the hulking government offices of the National Development and Reform Commission in Beijing each day since the announcement. Within the building are the men and women who decide how to parcel out stimulus money to projects that, they hope, will help keep China's economy afloat over the next two years.

A scrum of suits forms each morning inside a cramped guardhouse beside the main gate. On Tuesday, the applicants jostled for position to register for entry, many carrying thick folders tucked carefully under their arms. One by one, the applicants juggled their papers and bent down to mutter through a scratched receiving window.

Most eventually got in; some, who had come without appointments but hoped to find an audience, left disappointed. One man from a 15-member delegation from Shanxi province, dressed sharply in a dark suit and tie, started a shouting match with the guards at the gate when they refused him entry. He was taken away by police.

For all the tense energy in the air, there was also optimism. Liu Zhong, vice general manger of Jilin province's Tongli Industrial, sat calmly in a chair underneath a row of smudged windows, clutching an overstuffed computer bag and talking quietly into his cellphone. He liked his chances of getting help building a wind power station. "It's been getting easier for us to get bank loans, especially with the government trying to support small and medium enterprises," he said.

Across the room, Gong Liping had come to submit a proposal for an agricultural machinery project in central China's Henan province. The engineer from YTO waited impatiently inside the guardhouse, shifting from foot to foot. When asked what she thought of her state-owned company's prospects for funding, she was brusque: "It's already been approved by the provincial [officials], so I think we'll have no trouble here."

Back outside in the cold, project manager Xu Yongjiu had traveled from his home in Inner Mongolia to Beijing to pitch a wind power project for his private business, Mianlian Wind Power.

He emerged from the main gate with a spring in his step, his head high, extra copies of his proposal tucked under the arm of his worn beige jacket. "They said they'll consider it," Xu reported as his three colleagues searched for their black sedan in the sea of black sedans parked haphazardly in front of the gate. "Of course, how much money we'll actually get, I have no idea."

For the moment, Shen Minggao and other analysts say the stimulus should be "sufficient" to jump-start China's economy and keep its gross domestic product growing at above 8 percent for at least the next two years. That is the minimum level that economists say is needed to keep generating enough new jobs to maintain stability in the labor market. GDP growth slowed to 9 percent in the third quarter, the first time in more than five years that China has recorded single-digit growth.

Although the stimulus plan addresses China's short-term economic needs, it does not directly answer the question of how to increase China's consumption and domestic demand. Analysts say that issue is critical to the U.S.-China trade imbalance and to the longer-term outlook for the world economy.

"These large infrastructure investments, aside from the fact that there'll be a huge amount of fraud and waste, aren't likely to be the most efficient way of transforming the Chinese economy," said Michael Pettis, a finance professor at Peking University. "Most people would argue that the most efficient way of boosting demand is by boosting household consumption."

Pettis said consumption accounts for about 30 percent of China's growth, compared with 70 percent in the United States. "They're both out of whack. A better balance might be 50 to 60 percent," Pettis said. "But 30 percent is definitely too low."

Researcher Liu Liu contributed to this report.