Henan vice-governor Li Chengyu has returned from Beijing highly satisfied with his strenuous lobbying efforts.

China's newly approved five-year plan is full of goodies for the country's most populous province of 93 million thanks to approval for a batch of gigantic infrastructure projects.

"We asked for more infrastructure spending," Mr Li said.

This is what has kept his poor and largely rural economy going at a time when agricultural and coal prices have tumbled to the lowest levels in seven years. A big road building programme partly backed by World Bank loans and the construction of the US$4 billion Xiaolangdi Dam also have helped.

Henan, like much of central China, has been lamentably poor at attracting foreign investment - a mere US$3.8 billion in a place which, if it was independent, would rank as the world's 10th largest state. The first McDonald's and Kentucky Fried Chicken restaurants opened their doors in Zhengzhou only this year.

Mr Li's greatest satisfaction comes from the announcement the state has finally opted to build the huge project to divert water 1,200 kilometres from the Yangtze River to north China. Best of all is the government's decision to choose the middle of three possible routes, which means 700km of the canal will built through Henan.

The same logic applies to another giant project approved in the five-year plan - the construction of the 4,000km gas pipeline from Xinjiang's Tarim Basin to the coast. This, too, will pass through Henan, which will get its share of the gas, four billion cubic metres, enough to start a big petrochemical project.

Even though the province has a large surplus of energy, stockpiles of coal and lots of laid-off coal miners, the Henan government is pleased the new plan involves state investment in new power stations which will double existing capacity.

Demand for this power supposedly exists in coastal regions and Henan hopes eventually to sell the surplus through a national grid. So far there are no customers for the electricity generated by the Xiaolangdi or the Three Gorges Dam when it starts generating power.

"We will just have to borrow more money from the banks,' Mr Li said to explain how it will all be paid for.

The State Development Bank is setting up a special 70 billion yuan (about HK$65.58 billion) infrastructure spending fund for Henan. Work on six more expressways is also about to start.

It seems that many officials in China have drawn on the lessons from the past three years: centrally planned big spending works and is indeed the only way out.

Capitalism looks a failure in this province. The Zhengzhou commodity futures market has all but closed down after 10 years of failure. Meanwhile dozens of pyramid schemes have collapsed, leaving many angry investors.

Government-backed trust and investment funds have fared no better and have had to be closed or merged. Most township industries have gone bankrupt leaving county governments desperately short of funds and sometimes badly in debt. Off the record, some officials admit that rural Henan is in the midst of a grave economic crisis, although official statistics paint a rather rosy picture of steady growth.

Beijing's renewed faith in mega-projects is best exemplified by the water diversion project, which is expected to cost US$24 billion and require 13 pumping stations.

There is also a project to divert water 50km from the Yellow River to Tianjin and plans to build two other water diversion routes. One requiring a series of long tunnels to carry water north to the Yellow River and another along the eastern seaboard parallel to the Grand Canal.

The economic merits of construction efforts like that of the Three Gorges are hotly debated. Officials are loudly calling for more public works but there are still many opponents with strong arguments.

The Yellow River valley is suffering from 20 years of drought which is threatening the subsistence agriculture of tens of millions. Many believe this is the result of man-made destruction of the ecology in the headlands of the Loess Plateau.

Money might be better spent on restoring the environment than on giant engineering schemes, critics say. Too many earlier projects like the Sanmenxia or Gezhouba dams had been expensive failures and more recent schemes were unproven.

Opponents also claim it would be much cheaper to repair outdated pipelines in big cities, build waste-water treatment plants and raise water rates to ensure a rational distribution of existing water by all users.

Yet the imagination of the Party seems gripped by other engineering fantasies: a series of 14 dams across the Mekong River and schemes to divert water from the Brahmaputra River which drains off the Tibetan plateau into Bangladesh.

(South China Morning Post)