Can big local projects effectively drive growth?

A1

The current wave of investment is mainly led by local governments. In the first seven months of the year, the central government has invested 938.7 billion yuan ($149 billion), a decrease of 3 percent year-on-year. But investment by local governments in the same period jumped by 22 percent to 17.49 trillion yuan. Obviously, the local governments are the main force behind the new round of investment, although some projects are supported by private capital.

The investment surge can help stabilize economic growth. It is not important to discuss whether to expand or limit the investment from the central or local level, but avoiding inefficient projects and preventing excess production capacity are the key. The new round of investment boosting should be in line with economic restructuring.

A2

It is very difficult to get the precise statistical data about the total value of local government investments. The money should be injected into "right" projects - for example, affordable-housing construction, resource and environmental protection, basic education, the medical sector and public health, water conservancy, and strategic emerging industries. The investment into high-pollution and high-energy consuming manufacturing projects should be limited.

A3

Most of the money is raised by local governments. In the first seven months, such fund accounted for 68.2 percent of the total invested amount, which increased by 22 percent year-on-year.

Meanwhile, the national budget fund was increasing fast, and was 30.5 percent more than a year earlier. But the budget fund was only 4.5 percent of the investment.

Because the central bank has loosened monetary policy, the liquidity of domestic capital markets is easing and the amount of new loans during the January-to-July period was 6.7 percent more than last year, accounting for 13.1 percent of the total investment fund.

The fund structure is healthy now. However, we cannot loosen supervision on local financing platforms, especially when the property sector - one of the most important economic pillars of local government - has been seriously controlled.

The local fiscal resources are decreasing fast, so much more attention should be paid to risk control.

A4

To stabilize economic growth, the government should accelerate economic reform and restructuring, promote the growth-pattern transition, and stop depending too much on investment for growth. The reform of the income distribution system needs to speed up, while the social security system needs to be improved.

It is also important to boost the modern service industry, which can help facilitate the fast growth of consumption.