Concerns about new round of investments

More than 19 provinces have pledged a double-digit investment increase for 2013, among which 11 provinces will spend more than 20 percent of their GDP. The official discourse includes new urbanization, emerging industries and agricultural modernization. But the real investment target is still mainly infrastructure construction. We cannot see anything different from previous plans. We must be vigilant to the negative influence this investment may have on local governments and the burden it will place on State-owned enterprises', says an article of the 21st Century Business Herald. Excerpts:

When external and internal demands are both weak, the Chinese government always resorts to investment to boost economic growth. The times have changed, but this policy largely remains unchanged. The potential danger of lack of investment is evident in the long run.

Heavy reliance on investment produces excessive productivity. Large-scale government investment is also likely to trigger a new round of inflation and run the risk of a financial crisis.

The debt ratio of local governments and SOEs has reached about 206 percent of GDP. In some places burdened with heavy debts, resident's consumption is compressed to only 35 percent of GDP. The new round of investment will certainly seek to get more money from residents' savings or collect financial resources through inflation measures. Even the developed southeast costal provinces have started to rely on high investment and not innovation and real economy. The new round of investment by local governments will have severe consequences.

Through this investment plan, the government is reinforcing its power, and returning to its former role as an all-controlling entity. The new urbanization’s core issue is not infrastructure construction but the extension of public services, from serving migrant workers, to giving farmers losing their lands due compensation.

People can be real consumers, quality laborers and innovators. They stand for the true direction of new urbanization.