The Chinese leadership has given itself a lot of leeway to accommodate a further slowing in the pace of growth in the Chinese economy this year after revealing plans for tax cuts and other stimulatory moves totaling of more than $US300 billion.
The government is targeting economic growth of 6.0% to 6.5%, Premier Li Keqiang told Tuesday’s opening of the annual meeting of China’s parliament.
The last time Beijing did so was during another period of flagging growth, in early 2016, when it set a target of 6.5% to 7%.
The news didn’t send the markets into raptures. the Shanghai market eased from a bright opening to be up around 0.3%. Hong Kong shares though were weaker, following the weal tone on Wall Street on Monday.
The range and tax cuts are an admission from the government that the economy is struggling in the 70th anniversary of the founding of the modern Chinese state in 1949.
Other markets were weaker across Asia – the ASX 200 fell 18 points while the NZX eased 0.15% from Monday’s record close.
Reuters suggested that would be the case in a report earlier this year and the range is significantly less imprecise than the ‘about 6.5% target adopted a year ago this week and the actual growth figure for 2018 of 6.6%.
The 2018 growth figure was the slowest since 1990 due to sluggish domestic demand and the impact of the trade war with the US and growing suspicions in other western markets about the activities of Chinese companies such a mobile tech giant, Huawei.
But the major part of the session yesterday and Mr. Li’s address was a series of tax cuts to boost economic growth.
That will see China cut billions of dollars in taxes and fees, increase infrastructure investment, and step up lending to small firms.
In fact, the government will cut taxes and other charges for companies nearly 2 trillion yuan ($US298.31 billion). Value-added taxes will also be reduced to support the manufacturing, transport and construction sectors.
That’s around 2% of China’s GDP, so a significant stimulatory move. Lending to small businesses is forecast to rise 30%.
Adopting a target range rather than a single growth figure gives policymakers room to adjust as the world’s second-largest economy slows further.
Some of the slowdown has been self-inflicted by the well-reported crackdown on financial risks, which has raised corporate borrowing costs and hurt investment while widespread moves to cut pollution in the northern industrial cities has hit employment, investment, and imports – especially coal, but continues to boost imports of LNG.
China’s fiscal policy will become “more forceful”, Premier Li told the Congress with the tax cuts as a centerpiece.
Meanwhile a private survey of China’s services sector yesterday confirmed the sluggishness in the economy.
Services make up more than 60% of the Chinese economy and The Caixin-Markit services purchasing managers’ index fell 2.5 points to 51.1 in February, closer to the 50-point level separating expansion from contraction and the lowest level in four months.
The services dip contrasts with the Caixin manufacturing gauge last Friday, which jumped 0.7 points, although that still left it just within contractionary territory at 49.9. Together the Caixin readings gave a composite PMI for overall growth to 50.7 for last month, down from 50.9 in January. Barely positive.
