China's stimulus plan raises concerns

Is China's over four trillion yuan's (US$586 billion) stimulus plan going to boost its domestic economy, or cause massive wastes? Maybe the latter, warned Zhou Xiaochua, chief of China's central bank.

He pointed out that some projects are too wasteful,which may "endanger investors' ability to pay back loans," he said yesterday at a forum at Beijing-based Chinese Academy of Social Science, which holds a group of advisors to the central government, reported Shanghai Daily. He suggested local governments should be allowed to issue bonds in order to replace their risky practices, such as fund-raising platforms, which is hard to control and could cause problems in the future. The Chinese law doesn't allow local governments to issue bonds, but Beijing had issued 200 billion yuan (US$29 billion) bonds on behalf of provincial-level governments as part of the stimulus plan. Zhou's concern has a reason. All the Chinese banks now are busy at lending money to all government-backed projects, regardless how infeasible the projects are. In other words, banks' evaluations are becoming lax, reported People Daily.