China unveils massive kitty for fiscal stability
China said yesterday it would loosen credit conditions, cut taxes and embark on the massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.
A stimulus package estimated at 4 trillion yuan (US$586 billion) will be spent over the next two years.
The kitty will be used to finance programs in 10 major areas: low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake in Sichuan Province.
It comes amid indications that economic growth, exports and various industries are slowing in China.
Policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.
Commercial banks’ credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
The decision was formally announced yesterday at a State Council, or Cabinet, meeting.
The meeting decided that credit expansion must be “rational” and “target spheres that will promote and consolidate the expansion of consumer credit.”
“With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation,” the meeting said.
The meeting announced that China would adopt “active” fiscal and “moderately active” monetary policies and map out more forceful measures to expand domestic demand, speed up construction of public facilities and improve living standards of the poor to achieve “steady and relatively fast” economic growth.
With the monthly consumer price index expected to drop further this year - after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September - the focus of macro-economic control has shifted from beating inflation to sustaining economic growth.
The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve-requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.
The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it’s most needed and spur private consumption.
Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion.
With global recession clearly in view, China must exploit the domestic market to offset weaker demand abroad, the meeting said.
Tags: CPI, inflation, investment