Hong Kong: The Chinese government has begun drafting tax and spending policies to stimulate the economy after a third quarter growth of 9%, the slowest pace since an outbreak of Severe Acute Respiratory Syndrome (SARS)—a severe form of viral pneumonia—in 2003.
Industrial production and construction slackened from July through September because of weak exports, a slumping real estate market and temporary restrictions imposed during the Olympics, the National Bureau of Statistics announced on Monday.
China’s state council met over the weekend and decided to shift the emphasis towards maintaining “a stable and rapid economic development”, the state-controlled media reported on Monday. The previous policy had been “to ensure growth and control inflation”.
As part of the new policy, the council announced that it would increase export tax rebates for everything from labour-intensive products such as garments and textiles to high-value products such as mechanical and electrical products. Banks will be encouraged to lend more money to small and medium-size enterprises, and support programmes will be drafted to help farmers, the government said.
Corrective measures: A textile factory in Hubei province of China.?The country is considering further raising its export tax rebate on textile products that were hit by slowing demand and a rise in yuan’s exchange rate. Reuters
Government agencies will also spend more to rebuild the earthquake-damaged areas of south-west China, to improve transportation links and other infrastructure and to improve the social welfare system, the official Xinhua News Agency said.
Hu Angang, a prominent Chinese economist who is the director of the Center for China Studies at Tsinghua University in Beijing, said in an interview on Friday that the government was drafting plans to step up its spending on vocational training and other educational programmes for adults.
The goal is to help China’s workers move away from low-wage, low-skill assembly line tasks in export-oriented factories and to provide these workers with the skills necessary for an internationally competitive economy that balances the service and manufacturing sectors. “The government needs to give consideration to human capital investment,” Hu said.
Chinese officials maintain that their country will suffer only limited harm from the global financial crisis, mainly through slower exports. “Our economy remains vigorous and has the capability to defend itself against international risks,” Prime Minister Wen Jiabao said on Friday.
Increased export tax rebates will make Chinese exports even more competitive in the US and Europe, particularly as China has intervened heavily in currency markets to halt any further appreciation of its currency since mid-June.
But with the US heavily dependent on China to buy the treasury bonds needed to finance a bailout of the American financial system, the Bush administration has stopped criticizing China’s trade and currency policies.
Policymakers in almost any country except China would be delighted with 9% growth, particularly given the financial turmoil that was worsening at the end of the third quarter.
India’s central bank announced on Monday that it was cutting its benchmark interest rate by 1-8%, as annual growth in industrial production has slowed to a crawl. Hong Kong authorities said on Monday that unemployment in the territory crept up to 3.4% for the period from July through September, compared with 3.2% for June through August.
But China faces a particularly acute need to maintain high growth rates. Its cities are growing by nearly 20 million people a year, mainly because of migration from lower-income rural areas.
Most economists estimate that 8% growth is needed to prevent urban unemployment from rising, which could ignite demonstrations and undermine the country’s social stability.?Clement?Chen,?chairman of the Federation of Hong Kong Industries, which represents the employers of 10 million workers in mainland China, said that the policies chosen by the state council would reduce the number of factory bankruptcies and layoffs likely in the months ahead. But he predicted the policies would not halt the overall deterioration in business prospects for exporters in China. “The worst impact, the worst situation, is not here yet,” he said. “I do believe 2009 will be worse than 2008.”
Corporate executives from cities across China said in interviews last week at the Canton Fair in Guangzhou and the Global Sources consumer electronics show in Hong Kong that while layoffs were rising, joblessness did not yet appear to be a serious problem.
Many laid-off migrant workers in export-reliant regions such as Guangdong province, next to Hong Kong, have returned to their villages, because high food prices have made farming more remunerative. Others are finding jobs in inland cities that depend more on consumer demand within China. Workers are not yet lining up outside factory gates in search of work, as they did a decade ago. But they are nonetheless becoming easier to find and hire, said Bill Chen, a sales manager at the Tinly (Jieyang) Electro-Acoustic Devices Co. Ltd, which makes automotive stereo speakers in Shenzhen that recently halved its work force to 100 employees.
“At the beginning of this year, it was quite hard, but now it is not difficult,” Chen said of finding workers.
Employees interviewed last month at three locations in Dongguan, a factory city in Guangdong, agreed that jobs were still available for those in search of work.
But Standard Chartered warned in a research report on Monday evening that economic growth would continue to weaken, from 11.9% last year to 9.6% for all of this year, 7.9% next year and just 7.1% in 2010.
The bank noted that the state council’s plans stopped short of calling for government spending, while the broad goals enunciated by the state council with few specifics may mean that the government will not act swiftly.
Industrial production expanded less briskly in September, rising 11.4% from a year earlier, than in August, when it grew 12.8%.
China has more options than most countries to cope with slower growth. For starters, inflation is slowing at the consumer level—the government said Monday that it was 4.6% in September, down from 4.9% in August and the fifth monthly decline.
With less to fear from rising prices, China’s central bank has already begun reducing regulated interest rates and loosening restrictions on bank lending, even though these steps could result in an expansion of the money supply and an increase in inflationary pressures. With the government running a large budget surplus, the finance ministry has begun lowering taxes on stock market transactions.
©2008/THE NEW YORK TIMES