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China economy 'to rebound' amid fine-tuning

Publication Date : 20-06-2012

 

China's economic growth is likely to rebound after the second quarter, supported by ongoing policy fine-tuning that focuses on fiscal measures while adjusting tight controls on the real estate market, top political advisers said yesterday.

Macroeconomic policies should be continually readjusted in the following months to sustain a relatively faster growth rate, according to a proposal from the Standing Committee of the Chinese People's Political Consultative Conference (CPPCC) National Committee, the country's top political advisory body.

"Fiscal policy should be really proactive, reflected in more intensified tax cuts for small and micro-sized enterprises, especially in the emerging and modern service sectors, to reduce costs and promote profits for companies," said the proposal issued yesterday.

The heavy tax burden, high loan costs and growing labour costs have become the main obstacles for Chinese companies in industrial sectors, said Liu Mingkang, former chairman of the China Banking Regulatory Commission and a CPPCC Standing Committee member.

As overseas demand weakens amid the eurozone debt crisis, China's economic expansion may decelerate to its slowest pace in three years in the second quarter, following worse-than-expected data in May, according to economists.

Huang Yiping, chief economist in China with Barclays Plc, forecast that the GDP growth in the April-June period may slow to 7.5 per cent, in view of weak growth in industrial production. It may speed up in the second half to 8.4 per cent.

Besides, policy watchers have also proposed easing controls on the property market to some extent.

"Restrictions on purchases should be relaxed for high-end residential properties in first-tier cities," the proposal suggested.

In May, residential house prices dropped at a much slower rate, the National Bureau of Statistics said, arousing market expectations that prices and real estate investment may rebound in the short term.

Last month, 43 of the 70 large cities monitored by the bureau saw a decline in house prices. Meanwhile, six of them reported price increases, compared with three in April.

"In terms of monetary policy, the easing should be moderate, with close attention paid to the liquidity, money supply and credit amount in the market, to avoid major fluctuations," the CPPCC proposal said.

It suggested the use of more price instruments, such as interest rate cuts, rather than cutting required reserve ratio, in order to maintain monetary policy stability while promoting market-oriented interest rate reforms.

"There is not a shortage of money in the Chinese market. The key problem is that the borrowing costs for small companies are too high, thanks to the current credit system of the commercial banks," Li Deshui, deputy director of the CPPCC Economic Committee and former director of the National Bureau of Statistics, said at the standing committee meeting.

Commerce Minister Chen Deming said at a briefing in Los Cabos, Mexico on Monday that China's economic growth may accelerate in June as a result of government measures to support development.

"The downward economic trend in April and May this year is pretty obvious," Chen said.

"I think that the June situation is turning for the better," he added.

China's yuan holding for purchasing foreign exchange, an indicator of capital inflows or outflows, returned to growth in May, according to data released by the central bank yesterday..

The yuan position increased by 23.4 billion yuan (US$3.7 billion) to 25.61 trillion yuan ($4 trillion) last month, in contrast with a 60.6-billion-yuan ($9.5 billion) decline in April, the first monthly drop this year.

Although May's increase was the most modest in almost a decade, it indicates that capital is returning to China despite concerns over an economic slowdown.

 

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