China seizes up to €138bn of unspent budgets

Angry Chinese authorities have seized up to 1tn yuan (€138bn) from local governments which failed to spend their budget allocations as Beijing seeks ways to stimulate economic growth which is at its slowest for 25 years.

The underspend, linked to officials’ reluctance to splash out on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year.

“In the past, local governments had asked for the money. Money was given, but no one acted,” said one of two sources close to the government.

“Investments were not realised, and the money will be reallocated,” added the source, an economist. He did not elaborate on how the funds would be spent.

The repossessed money will pay for other investments, said the sources, as economic growth looks increasingly likely to fall below 7%.

Lacklustre spending growth could be especially costly for China, as higher investment is seen by many as the best way to shore up activity, at least in the short-term, even if it does put deeper reforms on the back burner for now.

One trillion yuan of unspent funds is equivalent to about 6% of China’s projected total government spending for 2015.

China’s economy has had a difficult year. Unsteady global demand and a wobbly Chinese housing market are expected to drag full-year growth to 7% in 2015, though many analysts suspect the true figure to be much lower.

A near 40% drop in China’s stock market in the summer and a shock devaluation in the yuan further roiled investors and policy makers.

Economists said Beijing had decided the best way to stabilise the currency was by steadying the economy through higher fiscal spending.

Reuters