Beijing  - How large is China's economic stimulus package?

This question not only occupied the delegates of the National People's Congress, whose annual session ended Friday in Beijing, but also representatives of foreign companies who want to know what is going to be in the picture for China's economy.

In November, the programme designed to stimulate the economy was announced in the amount of 4 trillion yuan (586 billion dollars).

But concrete details were still lacking as congress delegates demanded "more transparency."

However, they approved the package together with the state budget on Friday, as China's rubber stamp parliament has never rejected anything.

But the real size of stimulus package still lies pretty much in the dark. Less than half comes from state coffers as the government has decided that the bulk is to be secured through bank loans.

In this context, it remains unclear what proportion of these loans would be regular ones and how much could be best described as "secured through finance politics."

"It is not possible to tell precisely how much bank lending targets stimulus projects - which is one of the downsides of the current plan," the business magazine Caijing said recently.

The amount of lending has already exploded since the beginning of the year, although not necessarily all because of stimulus measures.

On one hand, previous loan restrictions have been relaxed. On the other hand, many previously "hidden loans" circumventing the restrictions suddenly have appeared as legitimate in the books, as foreign experts point out.

A genuine stimulus package to the tune of 4 trillion yuan to be injected over the next two years would account for 6 per cent of China's gross domestic product (GDP) in 2009 alone.

But the central government only provides for 1.18 trillion yuan of the whole package. The rest is supposed to come from other sources like loans by banks, as prime minister Wen Jiabao explained on Friday.

The 1.18 trillion yuan from state coffers are broken down to 104 billion yuan in the last quarter of 2008 and 487 billion yuan this year. The rest is to be spent in 2010.

Together the fiscal stimulus this year from these two spending measures will be 590 billion yuan, or 1.8 per cent of expected GDP.

Prime Minister Wen Jiabao enthusiastically pointed at tax reductions of "up to 600 billion yuan" on top of that, but without mentioning that a major part of this would be tax losses stemming from the economic downturn.

"We estimate that the [real] stimulus from new 'discretionary' tax reductions since the fourth quarter of 2008 is about 300 billion yuan, or about 0.9 per cent of GDP, and most of it will only benefit the corporate sector," China experts at the Swiss bank UBS AG said in a recent report.

They also estimated that another 0.3 per cent stimulus effect on the GDP would be derived from increased social spending - far beyond the normal increase - on health, education and social welfare.

"Therefore, from the central government's budget, the discretionary fiscal stimulus this year, including the disbursement in the last quarter, is just about 3 per cent," the UBS experts calculated - only half of the 6 per cent that a full 4 trillion yuan package would have had.

While China's provincial governments are supposed to also contribute to the programme, their coffers have practically dried up, and they are not allowed to raise money by themselves.

The combined 200 billion yuan that they may raise though bonds this year as an exception may not even cover their losses.

So the only way for more stimulus will be the banks, which, after costly recapitalization and restructuring a few years ago, are in a comfortable position to lend money.

Unlike in the rest of the world, China's financial system has so far escaped the global financial crisis unscathed.

A financial crisis does not exist in China, only a crisis of the real economy brought on by slumping global demand for products made in China.

But with massive investment policies and export promotion, China has been resorting to instruments that would have made more sense before the global economic meltdown.

More than ever the manufacturing industry is faced with the risk of overcapacity.

Instead of measures to promote exports, which nosedived by another 25 per cent since February, only a determined stimulation of domestic consumption might compensate for this decline.

But experts also warned of a lack of transparency if the government mainly relies on banks for the stimulus rather than running a larger explicit budget deficit. Bank financing makes it less transparent how much spending takes place in relation to various stimulus projects.

"If this approach is pursued heavily, it could even put at risk banks' balance sheets, their reputation and investor confidence," the UBS report warned. (dpa)