Despite deteriorating global financial conditions, the mainland stock market began rebounding and leading the world in late October. The rally was sparked by the central government's announcement of a massive 4 trillion yuan (HK$4.54 trillion) spending package.

The plan included promises of huge investment in rural infrastructure, affordable housing, railways and environmental projects. The promised tidal wave of government largesse has sent the Shanghai Composite Index soaring 35 per cent since late October.

While some say the upsurge in share prices points to better economic times ahead, there will be challenges for the various levels of administration as they try to put the spending package into practice. And there is no guarantee of success.

The overwhelming burden of funding the spending package falls on the central government and lower-level authorities.

According to the State Council, the central government will account for 29 per cent or 1.18 trillion yuan of the money, with the rest to be shouldered by banks, companies and local governments.

Despite the stock market upturn, this year is shaping up to be a tough one for the country, as the gap between shrinking fiscal revenue and swelling spending widens.

Slowing economic growth and shrinking corporate margins are cutting into the tax base and have sent the mainland's fiscal revenue sliding 17.1 per cent last month from a year earlier, compared with an increase of about 19 per cent for all of last year, the Ministry of Finance said.

In addition, the mainland's annual GDP growth fell to 6.8 per cent in the fourth quarter from 9 per cent in the third, slowing the pace of expansion for all of last year to a seven-year low of 9 per cent. According to the finance ministry, central government revenue was 296.5 billion yuan last month, down 28.4 per cent year on year.

China, pushing ahead on a positive fiscal policy, is already running a deficit of 111 billion yuan for last year, and as delegates convene for the National People's Congress early next month, they are likely to confront a wider budget deficit for this year as spending rises.

Ja Kang, a director of the finance ministry's Research Institute for Fiscal Science, said fiscal revenue for the central and provincial governments would be reduced by 500 billion yuan this year.

To meet the gap between outlays and income and fund the stimulus package, the ministry said the central government would hold 25 bond auctions this year.

The National Association of Financial Market Institutional Investors estimates that China will issue 1.4 trillion yuan of government bonds this year, more than double the 666.5 billion yuan the country issued last year.

The number of auctions is much higher than the 16 held last year, and this year 68 per cent of the auctions are for bonds with maturities of five years and longer, up from 56 per cent last year.

Guotai Junan Securities' senior bond analyst Lin Zhaohui said the central government would have no problems funding the stimulus package, but the lower-level authorities would struggle to come up with their share of the money.

'If the local governments fail to fund the stimulus package, China's economic performance will be disappointing this year,' Mr Lin said.

The situation is compounded by the provincial governments, which together have pledged to spend more than 10 trillion yuan on top of the 4 trillion yuan stimulus package over the next few years to boost their economies.

Local governments have little revenue to fund the stimulus package because their tax base has been eroded by the slowing economy and diminishing corporate margins, notably the adverse impact on their primary revenue sources from property deals in the past 10 years.

According to official statistics, more than 120 national land auctions have failed as the property market began its downturn following a government policy in 2007 to rein in the overheated sector. Income from land sales last year shrank to 960 billion yuan from 1.2 trillion yuan in 2007.

National land sales last month dropped 28.4 per cent to 296.5 billion yuan, while local government revenue slid 2.7 per cent to 316.7 billion yuan.

The decline matches that of the property market, with the average prices in 70 large to medium-sized cities slipping 0.9 per cent year on year. With a continuing oversupply, prices are likely to drop further.

The downturn in income will throttle local authorities, who cannot issue debt directly to fund the spending gap because of provisions in the 2004 budget law.

Fortunately, the Standing Committee of the NPC has reviewed a State Council proposal to allow local governments to issue bonds and late last week the Ministry of Finance pledged to help NPC overhaul the budget law to give lower-level administrations the fund-raising option.

Qu Qing, a senior bond analyst at Shenyin Wanguo Securities, said the 4trillion yuan stimulus plan should be sufficient to ensure the economy grew more than 8 per cent next year.

Mr Qu said the mainland's nominal annual investment could maintain growth of more than 30 per cent as long as the national stimulus package fed into the real economy.

'China's consumption and investment are stable at present, while the government's fiscal stimulus package would pick up the shortfall from falling exports amid the global downturn,' he said.

Mainland exports and imports fell unexpectedly sharply last month, with exports dropping 17.5 per cent from a year earlier after a 2.8 per cent decline in December. Imports plunged 43.1 per cent, twice as much as December's 21.3 per cent year-on-year drop, the General Administration of Customs said.

The stimulus package already seems to be having an effect - annual growth in broad monetary supply accelerated to 18.8 per cent last month from 17.8 per cent in December, while banks extended a whopping 1.62 trillion yuan in new loans during the month, almost 33 per cent as much as they lent in all of last year.

'The figures are encouraging; it seems the government's stimulus policy has achieved initial results,' Mr Lin said.

If the analysts are correct and the stimulus package can revive China's slowing economy, Mr Li's regret at missing out on the resulting stock market surge will linger. If not, he may just have made a great investment decision and escaped a financial catastrophe.