China's finance ministry on Monday ordered local governments to use money allotted to them under a 4 trillion yuan ($585 billion) stimulus package quickly and efficiently, or else risk losing out on future spending. The central government could "delay or cut" further allocations of money to those provincial governments that do not use their existing stimulus funds appropriately or do not raise enough of their own funds to complete the projects, the ministry said in a statement on its website (www.mof.gov.cn).
The move aimed to "ensure that projects backed by the central government get started in time and that budgeting for them is accelerated, in order to achieve our strategic goal of expanding domestic demand and promoting economic growth," it said.
The statement follows comments last week by Premier Wen Jiabao that the impact of the stimulus would eventually start to wane, and that it would take time for longer-term measures to stoke domestic demand to take effect. The ministry also said that any provincial governments that misused funds raised through bond issuances earlier this year could potentially see the amount of any future bond issues reduced.
Beijing first allowed such local government bonds in March, and to date a number of provinces have issued a total of 200 billion yuan so far this year - the maximum that the central government said would be issued this year. The central government is funding nearly 30 percent of the stimulus projects, leaving local governments to foot most of the rest of the bill - or about 2.82 trillion yuan.
The National Audit Office found in May that delays by local governments in raising financing were hampering implementation of the plans to revive economic growth. As a result of the package and other measures, China's economic data for August surprised on the upside last week, showing that its recovery is on a solid course but not so strong that Beijing will need to hit the policy brakes anytime soon.
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