THE National Development and Reform Commission (NDRC) has had a busy few days, apparently. In the past week, it posted on its website approvals for, among other things:

Some 2,000 kilometers of new highways

Nine sewage-treatment plants

Five port and warehouse projects

Two waterway-system upgrades

Subway lines in 18 cities

Market excitement about another "big" stimulus is to some extent justified. If infrastructure projects are not approved, growth will slump, so this is good news for investment- and infrastructure-related names.

These announcements are very much in line with our view from the second quarter - that China will authorize projects and allow financing in order to stabilize and build a gradual recovery.

The following is a quick Q&A on what is happening and how to think about China's latest stimulus.



Q: Are these projects "new" projects?

A: Well, it all depends. If a project is being approved by the central NDRC, it is unlikely that it has been approved before, and it is also likely to be large and require a number of years to complete.

So, yes, they are "new" and significant. But it is also likely that you may have heard before about a given project from local governments as something they wanted to do.

If a project is being announced by a local government - and thus does not appear on the NDRC website - it may be approved later (or not at all!). So multiple announcements about the same project aren't uncommon.

A local NDRC approves small projects, but big projects need the approval of the NDRC in Beijing.

Approved projects appearing on the NDRC website are only the ones the commission wants to make public. It quietly authorizes far more projects all the time, but names aren't released. The commission releases a list of projects on its website when it wants to signal to the market that it is actively granting approvals.



Q: How long do projects take?

A: It varies. The start will depend on obtaining all the various approvals and financing. Some projects may take one to two years; some five years or more. Some will slow if they cannot secure funding. Projects take time, and financing for many of them is still up in the air.



Q: How much will all these projects cost, and what is the economic impact?

A: There are no reliable estimates of the cost or the economic impact of the projects approved.

If you add the approved projects on the NDRC's website, you will miss not only all the projects approved at the local level, but also all central government projects that have not been announced.

If you add up the headline numbers released by local governments anxious to impress, there is little detail about start dates, how long projects will take or how and when financing will be arranged. Hence, you are really just adding up rough guesses.



Q: Where does the financing come from?

A: This is the key question. There is precious little private money going into any of the infrastructure projects, despite government "efforts" to get the private sector involved. And so far, the Ministry of Finance has not volunteered to run a larger deficit to put more public money into these projects.

Basically, this is, therefore, a small-scale repeat of the stimulus of 2008-10. In other words, do not use the words "fiscal" and "stimulus" in the same sentence unless the words "this is not a" also appear.

For large, strategic projects, such as rail and metros, there will be some central-government and then some local-government equity injected.

But, by and large, all these projects will be financed by debt, either via banks or debt issuance.

Banks have eased lending conditions for infrastructure, and the bond market is more open to issuance by infrastructure vehicles - maybe up to 500 billion yuan (US$79 billion) this year. But the amount of funds really available is unclear. Unlike in 2009-10, commercial banks are negotiating these projects very carefully.



Q: How's the market taking this?

A: From our conversations with clients, we observe that the reaction is varied.

Some are impressed by the large numbers announced and take it as a sign of stimulus. Others are waiting to see the financing and argue that until China starts worrying about jobs, the credit tap for infrastructure will be controlled.

We would say that they want to do enough to ensure stability - approving some projects and then monitoring the effects - in order to foster a gentle recovery. In other words, China is trying to steer a middle course between not doing anything and repeating 2009-10.

Whichever way it goes, we would have to keep watching factors such as cement and credit growth for a sense of how much of a difference these projects are making.



Q: How does the Chinese economy look as we head into the fourth quarter?

A: Overall, growth momentum stayed weak in August, and a quick rebound is hard to imagine.

The economy has problems with rising receivables and high inventories - and most importantly, a deterioration in confidence, which is feeding through to weak manufacturing investment. These are important drags on the economy and bear careful watching.

However, we also note that the consumption-services space so far looks fairly resilient.

The labor market is apparently healthy, and leading indicators such as credit growth have ticked up, partly due to policy easing that began in the first quarter of this year. That said, there are signs - for example, in computers, snacks, and Hong Kong retail sales - that consumption is decelerating.

We believe that further policy easing is still on the cards. The People's Bank of China appears to believe that benchmark rates are already low, the economy has stabilized and lower benchmark rates would re-trigger an investment-inflation cycle. One can understand their caution.

The problem is that real lending rates are high. A benchmark loan rate at 6 percent and producer prices at minus 3 percent suggest a real rate of 9 percent. If the State Council wants to boost growth in September and October in the face of slower data, it may well still order the central bank to cut rates.

The preference of the People's Bank of China appears to be cutting its reserve ratio requirement on banks.



Q: So when will things pick up?

A: When we saw the mini-stimulus in the second quarter, we took the view that the effects would show up in September, with growth stabilizing and then gradually recovering.

Here we are in September, and it is still a very mixed picture. Our expected moderate recovery looks to be delayed.

We are currently reviewing our 2012-13 GDP forecasts. We broadly see the mini-stimulus continuing and activity remaining slow in the coming two to three months, with possibly more movement in policy after October. We take comfort from overall credit growth though, and still believe this points to a mild recovery in the near future, which will be clear by the first quarter of 2013.

The article is based on a Standard Chartered Bank report: "China - September and the turn is not here." The opinions are their own.