Blowing Up Bridges To Nowhere

It would seem a 40-year old bridge in Sichuan sufficiently well-built to withstand last year’s devastating earthquake should be let well alone. Yet local officials with stimulus money to spend tried to blow it up so they could replace it with a newer bridge built with some of the 4 trillion yuan Beijing earmarked last November to reinvigorate the economy.

It is one of a couple examples quoted in a recent editorial in the China Daily castigating local officials for being overeager to secure new construction projects — and the funding for them. While the China Daily didn’t explicitly join the dots to stimulus spending, Forbes’s Tina Wang does. Beijing, increasingly concerned about bad loans and squandered resources, is now moving to “tame its credit tiger,” she says.

We have noted before how stimulus money has been finding its way into fixed and financial assets, providing an economic sugar high rather than developing long-term domestic demand. The National Audit Office said last week that banks need to get better at  lending for projects that do just that, rather than to give short-term loans that are finding their way into speculation or local official’s pockets. Guidance is already being given to the banks to that end.

What this will also like mean is that the state-owned banks will increasingly lend to their old customers, state-owned industrial enterprises. Regardless of plans to ease investment controls on private enterprise, small and medium sized enterprises will continue to find financing difficult to get, regardless of whether they are genuine entrepreneurs or just frontmen for local and provincial officials with a hand on the honeypot.

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