China's new mini-stimulus extends tax breaks to bolster economy

BEIJING, April 3 (UPI) -- China's government announced a small increase in government spending to boost the economy, which has been growing at a slower than expected rate.

China's State Council, the country's cabinet, also decided to extend tax breaks for small and very small businesses through 2016 and said it was open to broadening those breaks. China wouldn't have undertaken this stimulus had growth hit its target of 7.5 percent this year.

“Officials attending Wednesday’s cabinet meeting also said China will improve macrocontrol in 2014 with measures to stimulate enterprises, expand domestic consumption and boost employment,” the government said in a statement distributed by Xinhua, the state-controlled news agency. “There will also be fiscal help in coping with unexpected challenges.”

While the stimulus is not large it is substantial enough to give the economy the required boost to bolster the GDP. Unlike in 2009, when the government asked local governments, who cannot issue bonds, to finance most of the stimulus, the Chinese government will use bonds financed by the China Development Bank, which operates as an arm of the state.

China plans to spend the money on pushing forward infrastructure projects, such as rail and social housing, that had already been planned. The country will issue $24 billion in bonds to finance railway projects in less-developed areas and $48 billion to finance 4,100 miles of new rail lines, an increase of 620 miles from last year.

China in 2009 had used a large spending program, funded by bank lending, to limit the slowdown to its economy. This time around they will issue bonds, like many market economies choose to do, and should help the country achieve its target of 7.5 percent growth.

[New York Times] [BBC]