Details Start To Emerge Of China’s Economic Policy Tweaks

Some detail is emerging on plans to boost domestic consumption and dampen down prospective bubbles being inflated by stimulus spending.

The State Council says that tax breaks on the re-sale of homes are being cut back, though subsidies for household appliances, farm machinery and the most part for cars are being extended into 2010, as  we suspected they would. More interestingly, the State Council also announced an easing of the restrictions on permanent residence in small and medium-sized cities and town. In essence there will be free migration between such cities’ suburbs and central areas and between towns under their jurisdiction and surrounding rural areas. The idea is to boost domestic demand away from the top-tier cities.

New lending in 2010 will be capped at 8 trillion yuan ($1.2 trillion). New lending in the first 11 months of this year was 9.2 trillion yuan, 5 trillion yuan up on the corresponding period of 2008, according to the People’s Bank of China. Urban fixed-asset investment is up 32% for the period at 16.9 trillion yuan. So the proposed reining in of new loans next year will be significant, if it can be imposed.

Details of more adjustment measures are likely to emerge in coming weeks, but few if any will tackle the root problem of overcapacity we discussed a couple of days back.