BEIJING — China’s plan to spend $6.5 trillion on urbanisation to bolster the economy is running into snags, sources close to the government said, as top leaders fear another spending binge could push up local debt levels and inflate a property bubble.
Premier Li Keqiang has rejected an urbanisation proposal drafted by the National Development and Reform Commission, seeking changes to put more emphasis on economic reform, according to the sources, who are familiar with the matter.
Many local authorities have already lobbied to get funding for projects, ringing alarm bells among top leaders in Beijing.
State-owned China Development Bank recently pledged to lend 150 billion yuan ($24.47 billion) to southeastern Fujian province to support its urbanisation and channel 30 billion yuan into urban projects in central Anhui province, according to Chinese media.
“The urbanisation plan could be delayed. Top leaders have seen potential risks if the programme cannot be kept on the right path,” said an economist at a top think-tank which advises the cabinet.
“The leadership aims to jumpstart reforms, but local governments see this in a different perspective – they view this as the last opportunity to boost investment,” said the economist who requested anonymity due to the sensitivity of the issue.
China plans to spend some 40 trillion yuan ($6.5 trillion) to bring 400 million people to its cities over the next decade as leaders such as Li try to sustain economic growth that slowed to a 13-year low of 7.8 per cent in 2012.
Li, the driving force behind urbanization, has turned more cautious following warnings from leading academics over the risks, said the think-tank sources who are involved in the policy discussions.
The NDRC is racing against the clock to amend the long-term plan in a bid to publish it by the end of June. (Reuters)