China’s Li Vows Support Measures From Rail to Tax Breaks

Chinese Premier  Li Keqiang  said the nation will speed railway construction, especially in central and western regions, adding support for an economy that’s set to expand at the slowest pace in 23 years.

The State Council also yesterday approved tax breaks for small companies and reduced fees for exporters, according to a statement after a meeting led by Li.  China  plans a railway development fund, the government said.

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A passenger wheels his luggage past a China Railways high speed train at Hongqiao Railway Station in Shanghai, China. Photographer: Tomohiro Ohsumi/Bloomberg

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July 25 (Bloomberg) -- Stephen King, chief economist at HSBC Holdings Plc, talks about China's economic growth and Asia's emerging markets. King also discusses Federal Reserve monetary policy and the outlook for the global economy. He speaks with Susan Li on Bloomberg Television's " First Up." (Source: Bloomberg)

Additional spending would help the world’s second-largest economy, after the government signaled this week it will protect its 7.5 percent growth target for this year following a second straight quarterly slowdown. Economists surveyed byBloomberg News  cut expansion forecasts this month, reaching a new median estimate of 7.5 percent, which would be the lowest since 1990.

“Premier Li’s team has been surely working around the clock” to arrest the slowdown, said Lu Ting, head of Greater China economics at Bank of America Corp. in  Hong Kong. “It’s a small stimulus” that may boost confidence while having a limited effect in boosting demand, Lu said by e-mail today.

Resolutions passed at yesterday’s cabinet meeting included the exemption of companies with monthly sales of less than 20,000 yuan from value-added and business taxes starting Aug. 1, according to the statement. The move will benefit more than 6 million small businesses and affect jobs and income of tens of millions of people, the government said.

China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to yesterday’s statement, and will seek a balance of international payments that ensures stability of the yuan  exchange rate.

Private Investors

The government also plans to grant ownership and operating rights on some city and regional railways to local government and private investors.

“To get rich, you must build roads first, especially railroads,” Li was cited by the official Xinhua News Agency as saying at the meeting. Accelerating railway construction brings “multiple benefits” by promoting urbanization, stabilizing growth and improving people’s lives, Li said.

Delegates to the National People’s Congress from central and western provinces have told Li that the area’s rail system is “still underdeveloped, and people there are eagerly looking forward to more railways,” he said, as cited by Xinhua.

Trains, Maintenance

China had planned to invest 520 billion  yuan  ($85 billion) in railway construction this year, according to a rail-bond  prospectus  published July 19. Total fixed-asset investment by the railroads, which also includes train purchases and maintenance, will be 650 billion yuan.

“I suspect that we will see a lot of announcements of targeted spending over the next few months,” said  Mark Williams, a former U.K. Treasury adviser on China who is now a London-based economist at Capital Economics Ltd. “They may not add up collectively to much of a stimulus but they reflect efforts to really stabilize growth at the current level.”

Investors are looking for signs of additional support measures after exports fell last month by the most since the global financial crisis. China’s manufacturing weakened more than estimated in July, according to a preliminary survey of  purchasing managers  released yesterday.

President  Xi Jinping  called on the nation to “enhance vitality” of the state-run economy and encourage, support and guide the development of the private sector after meeting provincial leaders in Wuhan, according to another Xinhua  report.

Separately, government agencies including the National Development and Reform Commission vowed to improve measures to cut drug prices this year and push forward public hospital reform, according to another statement on the central government’s website.