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China unveils mini-stimulus

April 3, 2014

China’s leaders have adopted new measures to keep the world’s second largest economy on track for steady growth. The stimulus, comparatively small in size, aims to shore up smaller businesses and to boost rail projects.

Bildergalerie Hochgeschwindigkeitszüge China CRH3
Image: picture-alliance/dpa

Under the batch of new measures announced by Prime Minister Li Keqiang late on Wednesday, smaller businesses in China would get bigger tax breaks, more social housing would be built and railway construction would be expanded this year.

Existing tax breaks for “small and micro” companies were scheduled to be extended until the end of 2016, the government said on its official website, following a meeting by the State Council, which is China's cabinet.

Rail to be expanded

Moreover, some 6,600 kilometers (4,100 miles) of new railway lines would be built this year, the government said.

That was about 1,000 kilometers more than originally planned, it said. For that, a special railway fund worth between 200 billion and 300 billion yuan (23-35 billion euros) would be created, and bonds to the tune of 150 billion yuan would be issued.

In addition, the country's biggest lender, China Development Bank, would set up a special agency to issue home financing bonds under efforts to speed up urban redevelopment projects.

Growth worries prompt stimulus

Chinese state-run news agency Xinhua quoted officials at the meeting as saying that additional steps were being prepared by the government for later this year, including more stimulus for enterprises and measures to boost domestic consumption and employment.

China trade figures shake markets

The latest program has come in response to fears that Chinese growth might fall below the government target of about 7.5 percent this year. It followed a string of disappointing economic data from the world's second largest economy. On Monday, for example, British bank HSBC published its Purchasing Mangers' Index (PMI) for China's manufacturing industry revealing a slump in the country's factory activity to an 8-month low in March.

Small but targeted

“This time the package is small in scale, but it is more targeted and involves reforms on financing to secure funding. So this should help China to smooth growth without exacerbating financial stability risks,” HSBC economists Qu Hongbin and Sun Junwei said in a statement on Thursday.

In the wake of the 2008 global financial crisis, China unleashed a much bigger stimulus program which helped the economy recover quickly from the shock. However, the program led to a credit boom and an explosion of debt which Beijing currently seeks to rein in by tightening money supply and credit conditions.

In Wednesday's announcement, the State council did not mention any new plans for monetary policy such as lowering banks' capital requirements or a cut in interest rates which might spur lending and subsequently economic growth.

uhe/ipj (AFP, Reuters, AP)