China offers bonds and tax breaks as new medicine for struggling economy

By AFP

BEIJING: Tax breaks and a bond campaign for Chinese aviation and railway companies are part of a blizzard of new measures agreed by Chinese economic planners to revive an economy slowed by a coronavirus surge.

China is the latest major economy bolted to a zero Covid strategy of mass testing and tough lockdowns to eradicate infections.

Traffic curbs have hit dozens of cities in recent months – from the manufacturing hubs of Shenzhen and Shanghai to the breadbasket of Jilin – seizing up supply chains and crushing retail sales and industrial production at their low levels. the lowest for about two years.

The State Council on Monday announced measures to “stabilize the country’s economy and return it to a normal path”, according to the official Xinhua news agency. Beijing will increase the value-added tax refund quota by 140 billion yuan ($21 billion), the agency said.

This brings the overall target for tax refunds, reductions and fee reductions to 2.64 trillion yuan this year, according to a reading of the State Council meeting on Xinhua.

Authorities will also double banks’ lending quota to help small businesses while allowing some borrowers to defer repayments, the report adds.

The government will also issue 200 billion yuan of bonds to support the aviation industry, reduce the purchase tax on some cars and support the issuance of 300 billion yuan of bonds for railway construction, Xinhua said.

“We believe these measures will provide relief and mitigate the severity of the slowdown in growth…(but) remain cautious about the growth outlook for this year,” Nomura analysts said in a note on Tuesday.

The moves come as Chinese cities roll out more regular Covid testing, crowding out other budget spending, Nomura said. Meanwhile, the zero-Covid strategy risks bogging down private demand, analysts added.

Markets remained gloomy despite the promises, with the Shanghai Composite Index down 1.2% on Tuesday, while the Shenzhen Composite Index slid 2% in afternoon trading.

Garland K. Long