China aims to shore up growth with mini stimulus targeting small firms, railways, housing

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HONG KONG – China’s leaders have unveiled a mini-stimulus aimed at shoring up sputtering growth in the world’s No. 2 economy.

Under the measures announced by Premier Li Keqiang, small businesses will get bigger tax breaks, social housing will be built to replace shantytowns and railway construction will be sped up.

Li, China’s top economic official, announced the new measures on Wednesday evening after a regular meeting of the State Council, China’s cabinet.

It comes as signs mount that China’s economy continues to slow, raising fears it may expand less than the 7.5 per cent that the country’s leaders have targeted. Factory data released earlier this week showed that business conditions in the first quarter remained mostly weak. China’s economy has been decelerating after a decade of double-digit growth as its communist leaders try to shift the economy’s focus to domestic consumption instead of trade and investment.

The stimulus announcement “means policymakers don’t want to take the risk of seeing growth slipping to below 7 per cent,” HSBC economists Qu Hongbin and Sun Junwei said in a report. “The government is clearly signalling that it intends to follow up with real policy actions to maintain growth.”

China’s growth rates remain high compared with the recent sluggish standards of Western nations, but last year’s expansion of 7.7 per cent was the slowest in two decades.

China’s policymakers are opting for smaller, more finely tuned economic relief measures rather than the massive spending and borrowing they unleashed following the 2008 financial crisis. The sweeping stimulus helped China’s economy recover rapidly but also led to a credit boom that leaders are now trying to rein in.

Parts of the package are aimed at financing the construction of public housing and railways, two important parts of China’s broader urbanization drive.

The latest measures call for slum clearance to be accelerated. To support redevelopment projects, the China Development Bank, the country’s biggest policy lender, will set up a special agency to issue home financing bonds.

To finance railway construction, authorities will create a special fund worth 200-300 billion yuan ($32-$48 billion) a year. They will also issue up to 150 billion yuan of bonds annually and encourage bank loans.

Li reiterated that China plans to build 6,600 kilometres (4,101 miles) of railway this year, some 1,000 kilometres more than was built last year. About 80 per cent of that will be in China’s central and western regions.

Existing tax breaks for small companies will be extended until the end of 2016 and the threshold for smaller companies to pay tax will be raised, although the new level was not specified.

Li’s statement had few other specific details and did not give the overall cost of the package.

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State Council website (Chinese): http://www.gov.cn/guowuyuan/

Follow Kelvin Chan at twitter.com/chanman

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