Cool Aid Cocktail For The Economy (Mix Rates, Taxes, Loans & Trade)

Related entries: Economy, General, Investment, News, Trading

As the economy continues to fly, the Chinese government has taken more action to try and reign in growth. According to the FT:

    “China on Friday responded to a surprise acceleration in growth during the second quarter and a jump in inflation by announcing it would slash its tax on bank deposit interest income and raise interest rates…

    Some analysts had forecast the authorities would scrap altogether the 20 per cent tax on interest income paid by bank depositors. Instead, however, in a terse announcement issued through state media, the State Council, or cabinet, said it would cut the rate to 5 per cent from August 15.

    In a co-ordinated move, the People’s Bank of China raised benchmark one-year deposit and lending rates by 0.27 percentage points with effect from Saturday, the fifth such rise decreed since April last year.
    The rate rise would “help to adjust and stabilise inflation expectations”, the central bank said in a statement.”

Despite these measures, which will help savers without hurting the banks, the stock market is holding firm (up 3.7 percent in Shanghai on Friday, when the moves were already generally expected).

These moves were followed by an announcement from the China banking Regulatory Commission (via Forbes) that they will try to restrict the growth of new bank loans to within 15 percent, and by the introduction of more trade-related measures by the Ministry of Commerce. This time it is curbs on processing trade in labour-intensive industries, aimed at cutting China’s trade surplus. The People’s Daily reports:

    “The new policy, to take effect on August 23, shall cover 1,853 products in plastics, furniture and textiles and other labor-intensive industries.

    Under the new policy, enterprises engaged in the production of the affected products are required to have guarantee deposits in the Bank of China, the designated bank of China Customs, while registering their process trade contracts with the authorities, according to the statement jointly released by the Ministry of Commerce (MOC) and China Customs…

    According to the statement on the ministry’s website, the move targets high polluting and high-energy-consuming industries in eastern regions of China [including] Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian and Guangdong.”

The question remains as to whether even colder treatment will be needed. It seems that some think it will not. Forbes reports on comments by Yao Jingyuan, chief economist of the National Bureau of Statistics (in the China Times):

    “Despite the relatively fast GDP growth, economic efficiency is improving and the economic structure is being optimized…The current rate (of growth) is acceptable.”

But given that the economy is running ahead of target, and if growth continues to accelerate (and the stock market to bubble), more action seems inevitable.

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One Response to “Cool Aid Cocktail For The Economy (Mix Rates, Taxes, Loans & Trade)”

  1. Archive » July’s Trade Surplus Surge| China Business Blog Says:

    […] The stock market (CSI 300 stock index) has risen by 130 percent this year It seems that interest rate rises, export tax tinkering, and stock market warnings have so far done little to […]

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