Chinese economic news

Chinese authorities have announced a number of reform/stimulus measures in recent days via websites and the local media.

What has been announced?

According to Reuters, quoting the state-run China Daily newspaper, “China plans to invest 1.7 trillion yuan ($277 billion) to combat air pollution over the next five years.” “The money is to be spent primarily in regions that have heavy air pollution.” The China Daily newspaper quoted Wang Jinnan, vice-president of the Chinese Academy for Environmental Planning and one of the architects of the plan.

According to the Financial Times and Business Insider, China's State Council has announced a few measures to support growth.

Cutting value added tax (VAT) and business tax for micro and small enterprises (MSEs) with monthly sales under 20,000 yuan. Around six million MSEs are expected to benefit from this measure. A Bank of America analyst, Ting Lu, was quoted as estimating that the measures will total 20 billion yuan a year (US$3.3 billion).

Measures to support trade, especially exports, by speeding up the pace of reforms to simplify the export process. These measures also include cutting custom-related fees, encouraging financial institutions to support exporters, lowering tax on service exports to zero, increasing funding for import subsidies, and to "maintain RMB exchange rate stability at the appropriate equilibrium level."

Quickening railway construction.

In terms of railway construction, the People’s Daily quoted Premier Li Keqiang as calling for reform of funding methods for railways and for accelerated rail construction in central and western regions. The railway construction market will be "fully opened" through reform, and the building of rail facilities in less-developed areas will be emphasized, Li said at an executive meeting of the State Council, China's cabinet.

Combined railway investment in 2014 and 2015 will be 1.4 trillion yuan (US$228 billion) under the National Development and Reform Commission's plan, he said, adding that the overall distance covered by the nation's railway system will be 123,000 km by 2020, about 3,000 km more than scheduled.

The premier called for multiple fundraising sources for railway construction, including a greater role for private capital and the establishment of a railway development fund.

According to Reuters on Thursday: China will allow small firms to issue more bonds as part of plans to step up financial support for them in a slowing economy. Under rules issued by the National Development and Reform Commission published on its website, qualified state firms and local government financing vehicles will also be allowed to issue bonds and re-lend the proceeds to small firms.

Earlier on Wednesday (July 24) media reported that a five-year ban on the construction or expansion of government offices came into effect this week.

Also on Wednesday the People’s Daily reported that the State Administration of Foreign Exchange (SAFE) has introduced a series of measures to relax foreign exchange regulations for trade in services. SAFE said that, from September 1, it will allow companies in the services trade sector to deposit their foreign currency income overseas. It will also scrap its review of documents for services trade deals worth less than $50,000, and let the firms deal with the banks directly and would simplify its foreign exchange approvals for services companies.

Last Friday, the People’s Bank of China (PBOC) announced that it will remove all controls on lending interest rates and allow financial institutions to freely set rates with the aim of reducing costs for businesses.

China’s central bank scrapped the floor on lending rates, previously at 70 per cent of the benchmark rate, and also removed the cap on lending rates by rural credit cooperatives.

What does it all mean?

Chinese authorities are serious about reducing costs and impediments to business in the hope of stimulating growth. And rather than short-term cash injections, the measures are aimed at ensuring the economy operates more efficiently and productively.

The new administration has made it clear that it want to rebalance the economy, lifting the share of spending by households as opposed to business investment. And the aim is to foster firm but sustainable growth. The new measures to reduce pollution are consistent with this aim as well as to focus on improving the quality of life of the Chinese people. In part the intention is to reduce any source of discontent as well as to add to economic efficiency and quality of life.

On Thursday the labour ministry said that the unemployment rate was stable at 4.1 per cent in the June quarter. But Reuters quoted the labour ministry as saying that China faces big pressure on employment in the future as the country moves to solve structural problems that have led to overcapacity in some industries.

The good news about all the announcements is that China is aiming to keep the economy growing at a firm clip but the emphasis is on stability and consistency rather than short-term fixes.

In the background, the iron ore price has hit a 3-month high. And solid demand for iron ore continues with Bloomberg quoting the Port Hedland Port Authority as indicating that largest ever shipment of iron ore shipped yesterday on a 256,646 tonne Fortescue-loaded vessel.

Craig James