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China to step up fiscal incentives to boost growth

[BEIJING] China will adopt "stronger" fiscal policies to support growth, Beijing said as it seeks to sooth increasing fears about the world's second-largest economy following turmoil in domestic and overseas markets.

The government will accelerate major construction projects, allow more small companies to benefit from tax cuts, and encourage private capital to invest in key areas, among other measures, the finance ministry said in a statement released Tuesday.

Global markets have been in turmoil for weeks on worries about slowing growth in China, a key driver of global expansion, wiping trillions off share prices. The panic has also hammered mainland Chinese markets, with Shanghai's exchange plummeting after a debt-fuelled bubble burst.

The finance ministry gave no specific values for future spending. But it said that by the end of August the central government had already spent 96 per cent of its annual infrastructure investment budget.

To achieve China's 2015 growth target of around seven percent, the ministry said it would step up and improve a "proactive fiscal policy, fine-tune the measures in a timely manner and accelerate reforms that will help stabilise growth".

In share trading Wednesday the Shanghai stock market surged 2.29 per cent, extending a rally of almost three percent Tuesday on hopes for government measures to support the economy.

Economic expansion stood at 7.0 per cent in each of the first two quarters this year, but on Monday the government lowered its 2014 growth reading to 7.3 per cent, from the 7.4 per cent announced in January.

Leaders have taken a series of measures to bolster growth and curb falling share prices, including cutting interest rates last month for the fifth time since November and lowering the Chinese currency's central rate against the US dollar by nearly five percent in a single week.

But the benchmark Shanghai Composite Index has slumped nearly 40 per cent since mid-June despite official interventions that investment bank Goldman Sachs estimates have cost US$234 billion.

Official data released Tuesday showed the country's imports decreased for the 10th consecutive month in August by dropping 13.8 per cent, adding to concerns over sluggish domestic demand.

"China's economy has been placed under new pressures recently as uncertainties were added into the world recovery after turmoil in the global financial markets, sharp falls in main stock exchanges, continued depreciation of emerging market currencies and new record lows of prices of commodities including oil," the finance ministry said.

It vowed to reform the tax system and "further regulate" the management of local government debt, which is regarded as a main threat to financial stability.

On Wednesday, the National Bureau of Statistics announced it was reforming quarterly gross domestic product (GDP) calculation method to base the figures on economic activity of each quarter and "improve accuracy".

Analysts have questioned the veracity of official Chinese statistics, with some saying they can paint a rosier picture than reality.


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