Investing in the railways to get economy back on track
China's State Council is targeting €84.7 billion of fixed-asset investment in the railway industry this year
There are a lot of references to infrastructure in this week’s Asia Briefing, as we take a look at a freight rail link between China and Germany and the accumulated value of the country’s built assets as a measure of a country’s wealth.
The broader backdrop to these infrastructure references was the announcement last week by Premier Li Keqiang, who is in charge of the economy, that China will speed up railway construction, especially in central and western
regions, to try to boost gross domestic product (GDP), which is set to expand at the slowest pace in 23 years.
In what is effectively a mini-stimulus, Beijing plans a railway development fund, China’s State Council, or cabinet, said last week.
The government plans to grant ownership and operating rights on some urban and regional railways to local government and private investors.
“To get rich, you must build roads first, especially railroads,” Mr Li told the cabinet meeting. Accelerating railway construction brings “multiple benefits” by promoting urbanisation, stabilising growth and improving people’s lives, he said.
The State Council has also okayed tax breaks for small companies and reduced fees for exporters as part of its pledge to keep the yuan’s exchange rate “basically stable at a reasonable and balanced
This additional spending will help to support the world’s second-largest economy, after the government indicated that it will stick to its 7.5 per cent growth target for this year following a second straight quarterly slowdown.
Economists surveyed by Bloomberg have cut expansion forecasts this month, reaching a new median estimate of 7.5 per cent, which would be the lowest since 1990.
The State Council is targeting 690 billion yuan (€84.7 billion) of fixed-asset investment in the railway industry this year, the Beijing News reported, and for the five years to 2015, the cabinet has set a goal of investing 3.3 trillion yuan (€400billion), or 500 billion yuan more than in the previous plan.
Starting next month, companies with monthly sales of less than 20,000 yuan will be exempt from value-added and business taxes, which will benefit more than six million small businesses and affect jobs and income of tens of millions of people, the government said.
China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to a statement from the State Council.
The investment plans came after a raft of downbeat data in China. Exports fell last month by the most since the global financial crisis, while the manufacturing sector weakened more than estimated in July, according to a preliminary survey of purchasing managers.
The Purchasing Managers Index fell from 48.2 in June to 47.7 in July, its fourth consecutive fall.
“Our estimates suggest that GDP growth was actually slightly stronger in quarter on quarter terms in Q2 than in Q1, though the PMI fell,” wrote Mark Williams and Qinwei Wang at Capital Economics.
“Similarly, our China Activity Proxy suggests conditions were improving at the end of Q2. The upshot is that economic conditions may not be as weak as [the] disappointing PMI suggests.”
The government is keeping its tone on the economic slowdown even. Sheng Laiyun of the National Bureau of Statistics said when releasing the last GDP figures that China’s economic growth
was stable and economic restructuring aimed at shifting China towards
greater consumption, was progressing steadily.
Zhang Liqun of the development research centre attached to the State Council believes that China has entered a period of moderate economic growth, but said the pace was “appropriate”.
“China’s economy is bottoming out and seeking a new balance,” Mr Zhang told the China Daily, saying he was confident about both the short and the long-term outlook as China is still in the midst
of high-speed industrialisation and urbanisation.