HONG KONG — China’s leaders are issuing increasingly clear signals that they plan another round of economic stimulus programs, as evidence accumulates that the economy is slowing more than expected this year.
A government-affiliated survey released Thursday of purchasing managers’ sentiment in nonmanufacturing sectors like construction, computer software and aviation showed a fairly sharp drop in March. The decline came with sentiment in the manufacturing sector bumping along at weak levels since January and with real estate prices beginning to rise less quickly and overall industrial activity starting to grow less briskly.
The State Council, China’s cabinet, made clear its willingness to step in with a statement late Wednesday night, following a meeting that day.
The statement described officials at the meeting as saying that China would “stimulate enterprises, expand domestic consumption and boost employment” this year.
The government is also ready to adopt further fiscal measures if needed to help the economy “in coping with unexpected challenges,” the statement noted.
Economists described the government’s new effort as the beginnings of a “mini-stimulus” campaign.
Qu Hongbin, the co-head of Asian economic research at HSBC, and Sun Junwei, the bank’s China economist, said in a research note, “This may be a start of a slew of fine-turning measures.”
Yet the government’s promise of support drew a lukewarm welcome in the Shanghai stock market Thursday. Share prices edged up in the morning, only to slump in the afternoon, for a loss of 0.7 percent for the day, dragged down by the stocks of banks and real estate developers.
The decline reflected worries that government stimulus measures may not go far enough. The announcement Wednesday night had only one immediate consequence: an extension for one more year, through 2016, of an existing exemption from business taxes for the first 60,000 renminbi, or almost $10,000, of profits at small businesses. The State Council also said it was mulling a significant increase in the amount of profits that would be exempted.
The statement contained few other details, except to mention that railroad construction would be carried out rapidly and the renovation of rundown urban neighborhoods would continue.
China plans to open 4,100 miles of new rail lines this year, an increase of 620 miles from last year.
Prime Minister Li Keqiang has said the government will build or renovate homes for 4.7 million people living in makeshift shelters.
China also intervened in currency markets on a huge scale in late February and through March, issuing torrents of renminbi to buy up dollars. That had the effect of at least temporarily driving the value of the renminbi down about 1 percent, which helps make Chinese exports more competitive in foreign markets. The extra renminbi moving through the economy also brought down short-term interest rates, making it easier for troubled real estate developers and other large borrowers to continue borrowing.
But the scale of China’s measures so far is much smaller than those in 2009, during the global financial crisis. China limited its slowdown then with a huge spending program. The nation’s central bank also expanded China’s broadly measured money supply on a scale that dwarfed what the Federal Reserve achieved in the United States with its quantitative easing — the manipulation of the money supply and interest rates in an effort to stimulate growth.
Chinese leaders have called repeatedly since then for a shift toward consumption-led growth, but achieving that has proved difficult.
The Asian Development Bank in a report on Tuesday called for governments across Asia, including China’s, to adjust their fiscal policies to promote economic growth that is more inclusive of the poor.
Zhuang Juzhong, the deputy chief economist of the Manila-based regional lending institution, said in an interview in Hong Kong on Wednesday that China relies heavily on consumption taxes to finance government spending, which does little to address the country’s gap between rich and poor.
Consumption taxes, mainly a value-added tax that reaches 17 percent for a wide range of consumer goods, represent almost half of government revenues in China. That compares with less than a third of government revenues in most affluent countries.
At the same time, China has struggled to figure out how to introduce property taxes, which would tend to fall more heavily on the rich, and collects only a tenth of government revenues through personal income taxes, compared with about a third for affluent countries.
Source: http://www.nytimes.com/2014/04/04/business/international/china-leans-toward-more-stimulus-measures.html?n=Top/Reference/Times%20Topics/People/B/Bradsher,%20Keith?ref=keithbradsher&pagewanted=print
