The Debts of the Lenders: Chinese Learn Stimulus Package Is Not Free

WSJA(6/10) China Stimulus Plan Has Hidden Costs

(From THE WALL STREET JOURNAL ASIA) By Andrew Batson

BEIJING -- The cost of China's stimulus program is turning out to be much larger than official figures indicate, raising the stakes for the government's attempt to restart high growth through massive borrowing.

The spending spree has helped steady China's economy while other major nations remained mired in the global downturn. It is one of the largest stimulus programs adopted by any government in the world -- yet China plans to hold its budget deficit to just 3% of gross domestic product this year. That's about where the U.S hopes its deficit can end up in a few years after it scales back its stimulus spending.

In fact, China's formal budget is paying for only about a quarter of the two-year, four trillion yuan ($585 billion) investment program. Stimulus projects typically get fast approval and a partial financial contribution from the central government, with local authorities left to come up with the majority of the funds. But they don't have much money, as China's tax system channels most revenue to Beijing. The result over the past few months has been an explosion in local government debt -- liabilities that have the indirect support of Beijing but don't appear on its books.

"There is no such thing as a free stimulus package. There is a huge amount of unreported government debt, and we're adding to it now clearly," said Stephen Green, an economist for Standard Chartered in Shanghai.