China yesterday unveiled a small stimulus package aimed at supporting growth in order to reach its 7.5% target for growth this year. China will:
1. Stimulate railway construction by creating more financing channels to reach the ambitious railway development plans – see also China Daily.
2. Eliminate taxes on small businesses with monthly sales of less than Rmb20,000 beginning from the start of August.
3. Reduce costs for exporters by simplifying approval procedures and reducing administrative costs.
The package is quite small in size and mainly aimed at underpinning the economy through supply-side measures. China is not aiming to boost growth but simply to stabilise it in order to meet its 7.5% target for growth this year. For this to happen, China needs growth at 7.4% in H2 following 7.7% and 7.5% in Q1 and Q2, respectively.
If more signs develop that the Chinese economy is weakening further, China will probably announce more measures to fine tune and meet its target. Note, though, that although Chinese flash PMI weakened further in July, the details of the release showed signs of stabilisation as the order-inventory balance and export orders improved. The package highlights that the new leaders mean business when saying they won’t accept missing the target for growth this year. But also that we are not likely to see big stimulus packages to lift growth much – the aim is mainly stabilising it.
The new Chinese leaders continue to push for economic reform while securing a stable growth rate – see also China Daily story overnight on Chinese president Xi Jinping’s push to remove barriers to reform.