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What's Going on with China's Stimulus Package?

China sheds light on details of CNY 4 trillion economic stimulus package.

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China's economic planning body this week provided an update on the spending details of its hefty stimulus plan. Of the CNY 4 trillion ($586 million) investment, the Chinese central government pledged CNY 1.18 trillion (representing about 29.5% of the total fund), and the remaining capital (about CNY 2.82 trillion) will be funded by local government and the private sector. Since last November when the plan was first released, the central government has spent CNY 230 billion, including CNY 100 million in the fourth quarter last year and CNY 130 billion in the first quarter this year. The market is expecting the government to soon launch the third batch of investment totaling CNY 640 billion, including CNY 480 billion funded by local government and private sectors.

The government also provided a detailed breakdown of how the stimulus funding will be spent. About CNY 1.5 trillion will be spent on infrastructure construction including railways, roads, airports, urban power grids, and irrigation projects, representing the biggest share of the money. Another CNY 1 trillion will go to the rehabilitation project after Sichuan earthquake. These two projects will take up about 62.5% of the money. Low-income housing, rural infrastructure, innovation, and industry restructuring each account for over 9% of the plan, while education and health-care spending represents only 3.75% of the total fund. Thanks to the stimulus plan, China's urban fixed-asset investment in the first four months rose 30.5% year on year. However, a survey from the state auditor highlights some concerns on the implementation of the stimulating measures. One of the biggest concerns is the potential project delay due to the inability of the local government and the private sector to raise their share of financing.

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Iris Tan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.