China’s top leaders have made speech after speech emphasizing the importance of structural reform and their commitment to pursuing it even at the expense of letting the economy slow. But enough is enough. The State Council has approved a series of measures to bolster the economy.
It is perhaps going too far to call this a mini-stimulus package, though that may prove irresistible to the headline writers in the popular prints. We expect a series of such growth-boosting supply-side measures to be made over the coming weeks.
The initial set is:
- the elimination of value added taxes on small businesses with monthly sales of less than 20,000 yuan. There are an estimated 6 million of them;
- less red tape and more support for exporters, including the promise of a stable exchange rate (which may sit awkwardly with plans to open the capital account and move towards a fully exchangeable currency);
- and opening railway construction, particularly in the poorer central and western provinces, to private financing. This won’t add to planned spending plans, but make new sources of financing available.
We also note that the State Council has separately placed a five-year moratorium on the construction of new government buildings. We hope this isn’t a an exercise in donning a hair shirt, but a tacit recognition that China’s public infrastructure investment has to be more productive.