Beijing outlines rail and tax stimuli

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br China Asia Economy (41095047) Associated Press A woman lines up mannequin heads at a company making fashion wigs for export in the city of Jimo in east China's Shandong province. China has unveiled a mini-stimulus plan aimed at shoring up sputtering economic growth with tax breaks for small businesses. Photo: AP

Bloomberg Beijing

China has outlined a package of measures, including railway spending and tax relief, to support the economy and create jobs after a slowdown endangered Premier Li Keqiang’s target of 7.5 percent growth this year.

The government would sell 150 billion yuan (R258bn) of bonds this year to help build railways mainly in the less-developed central and western regions, the State Council said in a statement on Wednesday night after a meeting led by Li.

Authorities will also create a development fund of between 200 billion yuan and 300 billion yuan a year to increase sources of rail financing.

The measures expand on the cabinet’s plans to speed up construction projects after slowdowns in manufacturing, retail sales and investment pointed to unexpectedly weak growth. The second-largest economy probably grew 7.4 percent last quarter from a year earlier, according to analysts surveyed last month, down from a previous median estimate of 7.6 percent.

“It’s a mini-stimulus package designed to stabilise growth,” Xu Gao, the chief economist with Everbright Securities in Beijing, said. “As the growth rate is decelerating to the lower end of a reasonable range, Premier Li is trying to do something to get growth back on track.”

The policies and the government’s “clear commitment” to achieve 7.5 percent growth meant expansion would probably accelerate in the second quarter, said Xu, who formerly worked at the World Bank.

Rail stocks rose, with China Railway Construction up 7.2 percent in Hong Kong and China Railway Group gaining 5.1 percent.

The State Council also said the government would extend a preferential tax policy to more small companies and increase financing to build low-income housing.

China plans to build more than 6 600km of new rail lines this year, 1 000km more than last year, according to the statement. Almost 80 percent of the investments by the central government would be allocated to the central and western regions, the State Council said.

“We must roll out policies that spur businesses’ vitality, effectively increase demand and boost jobs,” the government said. Accelerating rail projects would “increase effective investments and lead the development of relevant industries”, it said.

The government is trying to balance sustaining growth and employment with reining in a credit surge and curbing pollution that has shrouded cities across the nation.

A Chinese building materials producer would avert what would have been the second default in the nation’s onshore bond market as its guarantor had said it would step in to help, Bloomberg reported on Wednesday, citing two people familiar with the matter.

Two Chinese manufacturing gauges released on Tuesday pointed to weakness in the economy last month, with a purchasing managers’ index (PMI) from HSBC and Markit Economics falling to the lowest level since July last year.

An official services index fell last month from February, while a private gauge from HSBC and Markit Economics rose, with both indicating expansion, reports showed yesterday.

China Development Bank will create a body with an independent budget to sell housing bonds to support revamping shantytowns and urban infrastructure projects, according to the State Council’s statement.

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