China announces fiscal stimulus as economy wobbles
China has announced a fiscal boost intended to inject life back into the slowing economy and counteract jitters created by heated rhetoric on trade relations with the US.
The government announced measures to support the “real economy”, citing “external uncertainties”. Taxes and fees for small businesses will be cut by 65bn yuan in 2018 to encourage research and development.
The government said it would also step up plans to issue 1.35 trn yuan of special bonds for local government infrastructure projects. But it tried to emphasise that the stimulus would be measured after previous infrastructure programmes were criticised for building indiscriminately.
“The government will give targeted and well-timed regulation in face of external uncertainties and maintain that economy performs within a reasonable range, adding that it will firmly refrain from resorting to a deluge of strong stimulus policies, the meeting announced,” the state council said.
The stimulus effort, announced late on 23 July, followed a $74bn injection into the banking system by the People’s Bank of China.
The measures reflect concerns in Beijing that the world's second biggest economy is slowing, partly due to uncertainty created by the Trump administration’s threats to impose additional tariffs on goods made in China. Surveys of manufacturing activity in June have shown activity weakening.
Economists at Pantheon Macroeconomics said: “The shift toward an easier stance will take place through different channels this time around, and likely will be muted compared with previous stimulus packages.
Chinese shares rose in response to the news and UK companies whose fortunes are entwined with China also benefited.
Miners Glencore, Rio Tinto and BHP Billiton, whose metals are used in Chinese construction, all gained nearly 4% in late morning trading in London. HSBC and Standard Chartered, banks with big businesses in China, rose 1.4% and 2.1% respectively.
Michael Every, senior Asia-Pacific strategist at Rabobank, said the market response was understandable in the short term but fundamentally mistaken.
"Just keep building and someone will come,” Every said. "This is the real policy, as we cynics knew it would be as soon as the slightest wobble was felt by Beijing. I fail to understand how so many China commentators describe this is as some kind of technocratic brilliance.”