Business / Policy Watch

China hastens fiscal spending to boost economy

(Xinhua) Updated: 2015-05-21 17:44

BEIJING - A central government fund worth 124.3 billion yuan ($20.2 billion) announced on Wednesday to finance affordable housing has marked China's hastened fiscal spending to prop up investment as the economy slows.

Also on the same day, the central government announced plans to spend 1,130 billion yuan over the next three years on Internet infrastructure in an effort to tap the consumption potential of rural Internet users.

Growth-stabilizing measures have dominated the headlines lately, after China's top leadership, the Political Bureau of the Communist Party of China Central Committee, made this one of its priorities in late April. It has particularly emphasized investment's key role in stabilizing growth.

The National Development and Reform Commission (NDRC), the country's top economic planning body, announced earlier this week that nearly 250 billion yuan will be invested in six new railways.

The projects include four high-speed lines in the eastern provinces of Shandong and Jiangsu, and in the northeastern province of Liaoning, and two urban rail transits in the southwestern cities of Chengdu and Nanning.

The financing for these projects will come from a combination of fiscal funds from local governments, the state-owned China Railway Group and bank loans, according to the NDRC.

The government has announced roughly one pro-growth measure every two days since May, according to a report in Beijing newspaper The China Times on Thursday. It labeled the accelerated spending a "salvation to the slowing economy".

"The measures unveiled by the government this month are designed to inject money into certain regions to boost construction," said Zhang Hanya, president of the Investment Association of China.

China's Ministry of Finance has confirmed "significantly accelerating" fiscal expenditure. It said fiscal spending hit 1.2535 trillion yuan in April, surging 33.2 percent year on year. The growth rate sharply outran the 8.2 percent recorded for fiscal revenues in the month.

In the first four months, total fiscal spending accounted for 26.4 percent of the annual budget, compared to 26 percent for the same period last year, the ministry said.

Fiscal spending on transport infrastructure, energy savings and environmental protection, as well as affordable housing saw the fastest growth.

In order to ensure much-needed funds for regional projects, a credit asset securitization (CAS) program worth 500 billion yuan was announced by the Chinese cabinet last week, through which banks' credit assets with poor liquidity and predictable income are sold in the form of securities in the capital market to generate liquidity and redistribute capital.

Money generated from the CAS program will be mainly used in refurbishing rundown housing, water projects and extending railways in central and west China, according to the cabinet.

Dragged by a downturn in the housing market and lackluster exports amid a uneven global economic recovery, China's economic growth in the first quarter slowed to 7 percent, the lowest quarterly level since 2009.

HSBC data released on Thursday on China's May manufacturing activity has shown persistent weakness in the economy. The flash manufacturing purchasing managers' index stood at 49.1 in May, which still marked a contraction despite minor improvement from 48.9 in April.

As the downward pressure on the economy mounts, the world's second-largest economy has also turned to monetary easing measures to spur growth. The central bank has cut interest rates three times since November. The reserve requirement ratio (RRR) was also dropped twice, in February and April.

Liang Hong, chief economist at the China International Capital Corporation, a joint venture investment bank, predicted the central bank will cut the RRR by another 200 basis points within the year.

"And if capital flow out of the country quickens further, the RRR cuts may even exceed our expectations," Liang said.

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