标题: [20081120]UBS China Question of the Week - How Large Is Public Investment? [打印本页] 作者: yangruoxin 时间: 2008-11-20 17:21 标题: [20081120]UBS China Question of the Week - How Large Is Public Investment?
The government's recent announcement of investing RMB 4 trillion by 2010 to stimulate domestic demand has caught the world's attention. As usual, the devil is in the details. The lack of precise detail in the announcement has led to questions and scepticism on the size of the actual stimulus and the influence the government might have on the economy. To help answer these questions, it is important to know how much the Chinese government normally invests in the economy. Just how large is China's public sector investment? Our Answer - Apparent government investment from the budget is small, accounting for about 4% in total fixed asset investment. Data from the sources of funds data on fixed investment show that investment with budget funds has declined to 3.9% of total investment in 2007, from the peak of 7% in 2002 (Chart 1). This is consistent with the expenditure data from the budget, where it used to show lines for "capital construction" (since 2007, the budget classification has changed). - Actual government investment has been substantially larger, accounting for 15% of total fixed capital formation in 2005. Since a portion of the spending by various ministries and sectors is investment, the flow of funds data in the national account would reveal a more realistic and thorough picture on government investment, although they come with a long lag (Chart 1). Government investment peaked in 2001 when it accounted for almost 26% of total fixed capital formation (9% of GDP), but has since dropped to 15% in 2005 (6.4% of GDP). Government investment in 2007 was most likely less than 15% of the total as well. - Government-mandated investment and public sector investment are of course even larger. By government-mandated investment, we mean direct government investment plus the various infrastructure investments conducted through local governments' investment arms or infrastructure entities. The latter are mostly not financed by the budget, but by corporate bonds or bank loans. We estimate this to be about 22% of total investment (27% if utility is included). In addition, there are still many large state-owned enterprises in the industrial sector in China, especially those related to the resource and basic material industries. Including large industrial SOEs, then China's public sector investment could be easily more than 35% of overall investment. - How do these data relate to the RMB 4 trillion or the RMB 1.18 trillion that will be put out by the government? We can easily see government investment (consistent with the flow of funds data in Chart 1) rising to 20% or more in 2009 from 15% in 2007 (equivalent to additional 2-3 percentage points of GDP, or 600-900 billion). Half of the additional government investment could be financed by increased deficit, and the other half from reducing other non-investment spending. The bulk of the RMB 4 trillion would likely fall into the "government-mandated investment" category, financed by corporate debt and bank loans. It is still not clear how much of the 4 trillion will be "new" or additional investment, but as private sector investment is likely to be weak or even fall, the rise in public sector investment can help to maintain a solid growth in overall investment. fwubschinaquestionoftheweekhowlargeispublicinv.zip (41.35 KB)
fwubschinaquestionoftheweekhowlargeispublicinv.zip (41.35 KB)