By Kang Yi, Hu Rongping, Xi Si, Zhang Bin
Issue 571, May 28, 2012
News, cover
Original article: [Chinese] 

This is an abstract of the front page story from this week's edition of The Economic Observer, for more highlights from the EO print edition, click here.

At an executive meeting on May 23, the State Council said it would concentrate on stable economic growth and strengthen its adjustment measures, which was interpreted as a sign that there will be more policies to stimulate the economy.

The signal was passed to ministries before the meeting. More than 70 projects that the NDRC had planned for the second half of this year have been fast tracked for approval.

According to the State Council’s plan, ministries will also be issuing detailed regulations on attracting private investment before June 5.

Wang Zhihao (王志浩) from Standard Chartered Bank thinks that China’s macroeconomic policies have loosened. Chen Dongqi (陈东琪) from the NDRC thinks that China’s economic slowdown could coincide with a decline in inflation.

The ministries’ policies are being interpreted as preparation for the economic slowdown that was signaled by the data in March. Although the NDRC has accelerated the approval procedure from March and seven eastern provinces have pledged to boost exports by 10%, the data was negative from April, especially for electricity consumption and bank loans.

The profits of centrally-controlled state-owned enterprises in the first four months this year also dropped by 13% compared to the same period last year.

As well as the meeting to bring forward the approval of investment projects and infrastructure projects in the “twelfth five-year plan”, subsidy policies were also introduced in May. The Finance Ministry allocated 66 billion yuan to the construction of social housing on May 24, and an official from NDRC revealed that cooperate bonds issued this year may exceed 5 trillion yuan.

Supportive tax and social insurance policies will also be introduced for middle and small-sized enterprises, according to a source from the Ministry of Industry and Information Technology.

The State Council has also arranged a subsidy of 26.5 billion yuan for purchases of energy-saving air conditioners, flat-panel televisions, fridges, washing machines and water heaters.

Many also hope to see a stronger policy of tax reduction. So far, the policy announced by the Ministry of Finance will follow same six measures as last year. Gao Peiyong (高培勇) from the Chinese Academy of Social Sciences thinks the effect will be a reduction of less than one trillion yuan and he believes that there should be greater cuts to value-added tax. Chen Dongqi (陈东琪) from the NDRC also suggested three areas for the structural tax cuts including the personal income tax, taxes for the emerging industries and the import-export tax.

Chen Dongqi (陈东琪) from the NDRC thinks that the risk of an economic downturn is growing and that GDP is likely to drop below 7% if there aren’t any supportive policies.

Chen predicted that the annualized rate of consumer price growth will fall to between 2 percent and 2.5 percent in June and keep declining in the second half of the year.

“The slowdown of GDP and CPI at the same time can be dangerous and I’ve been advocating for measure to avoid that situation.” said Chen. As for monetary policy, one person told the EO that there will be more reductions to the required reserves ratio, especially for middle and small-sized financial institutions.