Beijing seizes up to $220b in unspent funds from local govts

The Chinese flag flies outside the offices of the China Securities Regulatory Commission in Beijing on July 9, 2015.
The Chinese flag flies outside the offices of the China Securities Regulatory Commission in Beijing on July 9, 2015. PHOTO: AFP

BEIJING • Angry Chinese authorities have seized up to 1 trillion yuan (S$220 billion) from local governments who failed to spend their budget allocations, sources said, as Beijing seeks ways to stimulate economic growth that is at its slowest for 25 years.

The huge underspend, linked to officials' reluctance to spend on big-ticket projects while the authorities crack down on graft, supports the argument of some economists that Chinese state investment has grown too slowly this year.

"In the past, local governments had asked for the money. Money was given, but no one acted," said one of two sources, both of whom are close to the government but declined to be named as they are not authorised to speak to the media.

"Investments were not realised, and the money will be re-allocated," added the source, an economist. He did not elaborate on how the funds would be spent.

The repossessed money will pay for other investments, said the sources, as economic growth looks increasingly likely to fall below 7 per cent.

Lacklustre spending growth could be especially punishing for China, as investment is seen by some Chinese government economists as the best way to shore up activity in the short term.

The 1 trillion yuan of unspent funds is equivalent to about 6 per cent of China's projected total government spending for this year. The Finance Ministry was not immediately available for comment when contacted.

As part of sweeping reforms proposed by the government at the end of 2013, China is pursuing its boldest-ever anti-graft campaign that has felled a former domestic security chief, among others.

While the campaign has been a hit with the public, it has also had the unintended consequence of scuppering investment as fearful officials eager to stay out of trouble resort to early retirement or dither over approving major projects.

That has annoyed Beijing, which has repeatedly threatened to punish procrastinating governments by recalling their unspent budgets.

HSBC Bank estimated in May that China had 3.8 trillion yuan of unused fiscal funds carried over from previous years.

Official data showed investment accounted for slightly more than a third of China's economic growth in the first six months of this year.

Data over the weekend pointed to a stubborn weakness in China's economy. Growth in investment and factory output both missed forecasts last month, suggesting that China needs to roll out more policy support to lift the world's second-largest economy.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 15, 2015, with the headline 'Beijing seizes up to $220b in unspent funds from local govts'. Print Edition | Subscribe