Thursday, January 06, 2005

Just read a piece on the Chinese wire that frankly brought a warm feeling to my heart. Apparently, the State Development and Reform Commission (SDRC) and the Ministry of Finance are engaged in a nasty fight now over the size of this year's bond issuance. With more growth, one would reason that the government now needs to issue fewer bonds. This is Wen's thinking and obviously the preferred position of the MOF. Thus, In 2004, bond issuance was reduced by 30 billion RMB to 110 billion RMB, and the plan for 2005 is to further reduce it to 80 billion. Well, the SDRC is not happy about this at all, since it is in charge of distributing all "bond financed" investment projects primarily going to western and northeastern regions. They now will have less to dole out to eager local officials. Although the MOF is collecting more revenue due to growth, they are using the new money for "fiscal redistribution," over which they have total control. Thus, the reduction in bond issuance and bond financed projects creates a transfer of relative power from the SDRC to the MOF. Will this mean the end of SDRC? No, SDRC, formerly Planning Commission, has time and again reinvented itself along with the reform, even changing its name. It will do so again.

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