China Trapped In Dilemma To Stimulus Economy
The Chinese Communist Party (CCP) State
Council has announced it‘s program of spending.
This includes the construction of new railways and subways,
building low-cost housing and small business tax cuts.
Foreign media believe that in facing an economic
slowdown, the CCP is adopting stimulus measures.
It is acting in order to maintain a good GDP number.
However, experts point out that these
measures cannot help solve the problem.
They may also lead to a credit bubble.
On April 2, CCP Premier Li Keqiang
hosted a State Council executive meeting.
He said that the CCP government has launched a three
prong policy to drive steady economic growth during 2014.
This includes reducing small business enterprise
taxes, accelerating rebuilding of shantytowns,
and also accelerating railway construction.
These plans will especially effect
central and western railways.
The Wall Street Journal reports that CCP leaders
are being forced to make these tough decisions.
This is because of further declines in the
manufacturing and real estate industry.
The report says the hidden message from these recent
stimulus measures is the importance of economic growth
is greater than concerns over an impending credit bubble.
Ma Jiesen, China economic expert: “The rebuilding of
shantytowns is nothing more than a process of urbanization.
Those who have the economic
ability have moved to the cities.
In those first or second-tier cities, rebuilding
of shantytowns has basically been completed.
In those outlying cities, existing housing cannot be consumed.
As to basic industry; railways and highways are no longer
the main factor which restricts economic growth in China.
If the CCP invests more, it’s only
investing for the sake of investing.”
Currently, under irrational investment and development
of real estate, there have appeared twelve ghost towns.
They exist throughout China, including in Ordos, Inner
Mongolia, Yingkou in Liaoning Province, Changzhou
in Jiangsu Province, and Shiyan in Hubei Province.
So can it work to expand small business enterprise
income tax preferential policies, which seem to stimulate
raw power within the market and benefit the people?
Ma Jiesen: “They have been calling for small
and medium enterprises tax cuts for many years.
However, not only it is not reduced, but also
the situation has become more and more serious.
Now with economic decline, local governments are affected.
If this real estate bubble bursts, local
government revenue will be severely affected.
When the local governments are short of money, they will
definitely not cut another revenue source of SME tax.”
Feng Xingyuan, Vice-Deputy Director of the Beijing
Tianze Economic Analysis Institute commented to NTD.
When local governments have the pressures of
big debts, in addition to strengthening arbitrary
charges, they will also require the enterprises to
hand in their taxes and expenses for the next year.
Currently a variety of data shows that
China’s economy is slowing down.
HSBC released a March China Manufacturing
Purchasing Manager’s index as 48%.
This is the lowest in eight months. Investment
growth reached the lowest in the last six years.
The total retail sales of consumer goods
is the lowest on record since 2009.
Exports are significantly lower
than the level it was a year earlier.
Real estate sales, the price of iron ore
and cooper have all declined sharply.
Iron ore, steel and coal stocks have increased
a lot, and corporate defaults, local debts and
overcapacity all add pressure on macro economy.
Wang Jianguo, tutor, Guanghua School of
Management, Peking University: “Overall,
I think the short-term stimulus is necessary.
However, it cannot solve the fundamental problem.
The fundamental problem is regulation; it
has to turn a controlled market economy
into a market economy with free competition.
As control and corruption sit hand in hand,
if you are neither relaxing control, nor fighting
corruption, the economy cannot survive.”
Wang Jianguo also highlights that
currently China is facing a dilemma.
If they do not implement anti-corruption
initiatives, people will continue to become angry.
If they implement anti-corruption, government officials will
lose power, so many industries now exist under depression.
In addition, professionals worry that, the currency
issue has reached more than 110 million RMB.
This is more than double the GDP, and this economic
stimulus may depend on monetary measures.
Wang Jianguo: “The Chinese economy
is not currently active and circulated.
The printed money has become
dead, like water becoming ice.
If they print more money, once the economy improves,
there will be an economic bubble and financial crisis.”