Courtesy of Also Sprach Analyst.
By now, it should be widely known that the talk of stimulus in China is so far just that. Governments, both central and local, do not have the money to fulfil all of the funding requirements without raising new funds from borrowing, and so far there are very few signs that banks will fund the many mooted projects (and the government probably has not told banks to do so). Here is another anecdote to illustrtae which is more important: approval of projects, or approval of loans.
NBD reports that many construction projects of highways do not have enough funding, but a source from a big state-owned bank said that liquidity for highway projects is low. Many of the projects are now located in less developed areas of the country, thus the repayment period will be exceptionally long. Because of limits on new loans (constrained by the annual loans quota, presumably) as well as quasi interest rate liberalisation (which reduces profit), banks are not quite as willing to lend to these projects. So bizarrely enough, this source in Guangdong said that the provincial government has recently sent people in to work for the bank.
“It is not so much that banks do not have money”, he said.
The urban rail transit projects (with 25 of them recently approved) will most likely face the same problem. The same source said that urban rail transit projects will probably use up most of the provincial government’s available fiscal resources. In the past, Ministry of Railways would have contributed part of the funding, but this has stopped (as we have seen in the recently approved projects). For banks, the source said, because of low return on these projects and long period of repayment (potentially infinity?), banks are just not quite willing to fund these projects.
So with all the talk and excitement about the stimulus, one should recall that many of the projects being approved will probably not get enough funding. Until it is clear that the government and central bank is willing to let credit growth goes crazy once more, and until the central bank is on full throttle to ease, project approval is one thing, but bank loan approval is the more important factor to determine growth of fixed asset investment.