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Pro-growth economic initiatives announced

English.news.cn   2014-04-03 09:59:38

BEIJING, April 3 (Xinhuanet) -- China announced a slew of pro-growth measures on Wednesday in what economists described as a targeted stimulus program, after a run of disappointing economic indicators raised concerns that economic growth in the first quarter might slip below the official target.

At a State Council executive meeting presided over by Premier Li Keqiang, three major initiatives were announced, including tax breaks for small and micro enterprises, greater support for the redevelopment of run-down urban areas and more investment in railways.

The measures came after a series of data points indicated weakened economic activity from January through March. Economists worry that if no fresh measures were rolled out, the overall economy could sink to an unacceptable level.

"The economy now is like a decelerating car. If you take your foot off the throttle, it slows precipitously. But you also have to make sure that you don't gun it too hard," said Chen Hufei, a macroeconomic analyst with Bank of Communications.

Analysts said the initiatives announced at the State Council meeting signaled that the leadership is eyeing a targeted stimulus while refraining from an all-out massive stimulus that would risk worsening debt and overcapacity.

For example, the State Council said it is considering further measures to alleviate the tax burden on small and micro enterprises in an effort to stimulate the dynamics of this sector.

The statement after the meeting said the State Council is "considering" lowering the threshold for enterprises eligible for favorable policy treatment, halving the taxable revenue of their corporate income tax. The current line is drawn at companies with an annual taxable revenue base of less than 60,000 yuan ($9,700). The statement did not say how much exactly the threshold would be lowered.

The current tax policy was implemented at the beginning of 2012, with an effective period through the end of 2015. Wednesday's statement said the period will be extended one year, to end at the end of 2016.

The State Council also announced reform measures to back up the urban redevelopment program for run-down areas, in an apparent effort to prop up investments.

For the first time, the nation will establish a special institution under China Development Bank, a policy bank, to conduct independent accounting and empowered to issue special bonds to finance government-subsidized housing projects. Commercial banks, pension funds and insurance companies are encouraged to buy the bonds.

China will also deepen investment reforms in the railway sector, according to the statement.

Reform measures include the setup of a long-awaited railway development fund, more types of railway financing bonds and greater participation of private capital.

Chen, the analyst, said both the redevelopment and railway investment reforms aim to boost fixed-asset investment, a key engine of the nation's growth. He noted that since the fourth quarter of 2013, railway investment has risen steadily in the government investment mix.

"As property investment fell and the manufacturing sector was plagued by excessive capacity, investment in infrastructure became key for the central government," he said.

Investment in property, manufacturing and infrastructure are the three major components of China's fixed-asset investment picture.

Xie Yaxuan, head of macroeconomic research with China Merchants Securities, said the government intends to prop up the economy through reforms, rather than by the traditional means of eased monetary policy and progressive fiscal policy.

(Source: chinadaily.com.cn)

Editor: Lu Hui
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