Chinese Cities Plan Stimulus Spending

Chongqing in southwest China is among cities planning big investments.

BEIJING—Some of China's big cities are announcing large investment plans intended to boost slowing growth rates, but just how much of a lift they will give to the economy remains uncertain.

The city of Chongqing in China's southwest called for investment of 1.5 trillion yuan ($237 billion) in seven key industries over the next three years, the state-run Xinhua news agency reported Monday.

The investment goals include 300 billion yuan in the electronic communications sector, 200 billion yuan in the auto industry, 250 billion yuan in the manufacturing of advanced equipment and 150 billion yuan in the chemical industry, Xinhua said on Monday.

Chongqing is where disgraced Communist Party leader Bo Xilai was party chief until this year and where his combination of heavy investment and a strong role for the state became known as the Chongqing model.

Separately, Tianjin, a city next to Beijing, said it has "preliminarily" decided to move forward with a plan calling for investment of 1.5 trillion yuan over four years in 10 industrial sectors, ranging from the petroleum and chemical industry to the aviation and aerospace industry over the next four years, according to a report by the state-run Tianjin Daily posted on the Tianjin municipal government website on Tuesday.

The announcements follow a similar plan from Changsha, the capital of central China's Hunan province, which last month unveiled plans for 829.2 billion yuan in investments.

The plans signal a growing appetite in China for government spending to help boost slowing economic growth. In the second quarter, China's economy grew 7.6% from a year ago, the slowest rate since the global financial crisis, and more recent economic data suggest the slowdown will continue.

"Local governments don't want to see slowing growth, so what they can do is to push for more investment," said Nomura economist Zhang Zhiwei.

Word of the plan spurred markets in Australia, a major supplier of raw materials for the Chinese economy. The benchmark S&P/ASX 200 index rose 0.4% on Tuesday to its highest level in more than three months, while the Australian dollar was up 0.6% against the U.S. dollar in late Asian trading.

It isn't clear where the governments will get the money. None of the announcements specified whether the funds were in place or whether they would come from local, national or private-sector sources. Local governments, which depend on land sales for much of their revenue, are facing budget constraints across the country due to the weak property market.

During the massive stimulus campaign of 2009 to 2010, local governments borrowed heavilyfrom state-owned banksto fund investments, but this led to growing concerns over the quality of loans, and the practice has been reined in by regulators.

It also isn't clear whether the plans are new or previously announced. Chongqing's five-year plan from 2011 to 2015, unveiled by the city early last year, also called for 1.5 trillion yuan of new investment. The propaganda chief at the Chongqing agency that oversees investment and industry said she couldn't immediately comment.

Still, the growing eagerness of local governments to spend on projects is likely to give a boost to the economy, analysts say. "Even if only 50% of the plan is realized, that'll still be a substantial amount," Mr. Zhang said of the Chongqing plan.

"We continue to expect these city-level initiatives to help the economy to rebound in [the second half of the year]," he said.

The investment push by local governments raises concerns among some analysts that some of the mistakes of the 2009 to 2010 stimulus may be repeated, including exacerbating overcapacity and the Chinese economy's overreliance on investment to power growth.

Mr. Zhang said the investment may push up inflation next year, which could constrain the ability of the central bank to loosen monetary policy.

Liyan Qi