China's Stimulus Spending Questioned

The Chinese government has pledged that citizens will get a full accounting of how nearly $600 billion in stimulus donors is being spent. Critics say much of the package will go to inefficient state-owned enterprises, local bureaucrats and wasteful pet projects.

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World financial markets have both jumped and slumped in reaction to China's unveiling of a nearly $600 billion stimulus package. China insists the package, which is made up mostly of infrastructure projects, is the most efficient way to keep its economy growing.

But as NPR's Anthony Kuhn reports from Beijing, some observers think the key to real growth is not government investment, but fundamental economic reform.

ANTHONY KUHN: As soon as Beijing announced the stimulus package in November, Ch'ung-ch'ing, a city on the upper reaches of the Yangtze River, joined other local governments in submitting lists of projects for funding. Ch'ung-ch'ing got $34 billion, more than many locales. Some observers think that Ch'ung-ch'ing's Communist Party Secretary Bo Xilai's clout and connections had something to do with it.

Bo is the son of a party elder. But Ch'ung-ch'ing's mayor, Wang Hongju, denied such speculation at this month's session of the national parliament.

Mayor WANG HONGJU (Ch'ung-ch'ing, China): (Through Translator) We did not get our money by lobbying government ministries. Under the central government's plans for fixed asset investment, western areas such as Ch'ung-ch'ing get more money. There's a formula for this. It's not about personal connections.

KUHN: Ch'ung-ch'ing's economy is dominated by big state-owned companies, which are mostly deep in debt. Critics believe that Beijing is using stimulus funds to bail out these state-owned companies and buy the loyalty of the bureaucrats who run them.

Yen Yi Min(ph) is a Shanghai-based lawyer.

Mr. YEN YI MIN (Lawyer): (Through Translator) There's no doubt that the aim of this fiscal stimulus is stability. But the aim should not be the stability of the bureaucrat's income. So it's imperative that the government be transparent and allow oversight in the use of the stimulus money.

KUHN: Yen has filed a Freedom of Information Act request. He wants to know where the central government will get the money for the stimulus, what projects it will fund and at what cost. The government rejected the request. But at his annual press conference this month, Premier Wen Jiabao seemed to acknowledge public concerns about Beijing's spending programs.

Premier WEN JIABAO (China): (Through Translator) These programs are also going to be fully debated and evaluated. The whole process will be transparent and whole process will be subject to supervision.

KUHN: Wen argued that besides infrastructure spending, Beijing's plan also includes funding for environmental protection, affordable housing, and long-range restructuring of Chinese industries. The problem, Yen says, is that China's economic growth relies too much on infrastructure spending and too little on consumption.

He also recalls that a decade ago, China's massive fiscal stimulus helped it survive the Asian financial crisis. But it also bred widespread graft and waste. Bao Yujun is head of the China Private Enterprises Research Association. He worries that the same thing may happen this time.

Mr. BAO YUJUN (Chairman, China Private Enterprises Research Association): (Through translator) We're just afraid that the government ministries will take the stimulus money and circulate it among themselves or even engage in corruption. But if the process is transparent and bidding for projects is competitive, then it'll be okay.

KUHN: But, Bao says, private companies complain to him that they're mostly vying for scraps at the table of powerful government monopolies. Take electricity, for example. Bao says the government plans to invest nearly $147 billion over the next three years to upgrade China's power grid. That includes $8 billion just for electricity meters.

Mr. YUJUN: (Through translator) To those private companies that manufacture meters, it looks like a big piece of cake, but getting a piece of it is very tough because the state grid company has its own meter companies. You can't get in on the action without a lot of connections.

KUHN: Bao argues that China must level the playing field for private firms, which provide some 80 percent of China's jobs. He says China still has tremendous potential for consumption and growth.

Millions of rural residents remain to be urbanized. More than $2 trillion in household savings sit idle, but unleashing this potential, he says, requires reforms to break up powerful commercial and bureaucratic monopolies. What Bao worries is that government bailouts may actually just strengthen those monopolies.

Anthony Kuhn, NPR News, Beijing.

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