Chinese GDP slowed to 7.5% in the second quarter, confirming fears of an economic slowdown.
But Chinese premier Li Keqiang helped calm markets this week by saying that 7.5% is the growth floor for 2013.
Now, China's State Council has announced a few measures to support growth.
- Cutting VAT and business tax for micro and small enterprises (MSEs) with monthly sales under 20,000 yuan. 6 million MSEs are expected to benefit from this measure that is expected to total 20 billion yuan a year, according to Bank of America's Ting Lu. This is expected to help support employment.
- Measures to support trade, especially exports, by speeding up the pace of reforms to simplify the export process. These measures also include cutting custom-related fees, encouraging financial institutions to support exporters, lowering tax on service exports to zero, increasing funding for import subsidies, and to "maintain RMB exchange rate stability at the appropriate equilibrium level."
- Quickening railway construction. Here's a quick summary from Lu: "1. Setting up railway development funds by making the central government fiscal funding as cornerstone and attracting private capital." 2. Allowing investment from local governments and the private sector in inter-city urban transit, and commodity-transporting railway. 3. Encouraging land development associated with railway and using that to support investment. 4. Speeding up preparatory work of railway investment.
China is trying to support sectors of the economy that will drive growth. Most recently China's industry minister announced that sectors like steel, aluminum, cement and other sectors that are burdened by excess capacity, will be restructured.
Lu points out that these measures are "a small stimulus with both Keynesian measures to increase aggregate demand and supply-side measures such as cutting tax and red tape." He also points out that this time around we're not seeing massive monetary easing, and that the spending is focused on areas that need investment.
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