December 10, 2008 / 8:09 AM / 10 years ago

INTERVIEW-China's stimulus plan overblown -economist

BEIJING (Reuters) - The size of China’s headline-grabbing stimulus package is exaggerated and its boost to growth may disappoint, a Chinese economist said in an interview.

With the Chinese economy slowing sharply, the cabinet announced a two-year, 4 trillion yuan ($580 billion) stimulus package in November, and provincial governments have since rushed to publish spending plans for as much as 20 trillion yuan.

But Lu De, eldest son of the late reform-minded vice-premier Lu Dingyi, said the numbers were overblown, while adding that an expansionary fiscal policy is necessary.

“In the 4 trillion yuan package, only 1.65 trillion is newly added and the rest was already down on paper, like the 1 trillion yuan planned for earthquake-hit areas,” Lu said.

Lu, whose contrarian opinions have previously caught the leadership’s eye, said the 4 trillion yuan is estimated total investments instead of real government spending.

He is an independent economist and does not hold any position of authority, but as a “princeling” or son of a former leader, Lu’s views can take on greater weight.

“The 4 trillion yuan in China and the $70 billion rescue plans in the United States are two completely different things,” said Lu.

China’s top planning agency said only 1.18 trillion yuan of the overall stimulus spending would come from central government budget. The rest is supposed to be financed by local governments and bank loans.

Lu said investment blueprints announced by local provincial governments were more empty talk than serious plans.

For example, he questioned plans by Yunnan province, which has said it would invest 3 trillion yuan by 2012, including 1 trillion yuan in the next two years.

The southwestern Chinese province has also announced that it would buy one million tonnes of base metals, including 100,000 tonnes of tin, as reserves, which caused sharp price rises on the London Metals Exchange.

“But how could that be possible?” Lu asked. “The province’s fiscal revenue in 2007 was 48.7 billion yuan, or about one-sixtieth of its spending plan. Where can the province get so much money?”

Reporting by Benjamin Kang Lim and Zhou Xin; Editing by Ken Wills

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