Can a mini stimulus boost GDP growth?

China has set a GDP growth target of 7.5 percent for 2014, but because of the economy's weaker-than-expected performance in the first quarter of this year, many institutions have lowered their annual growth forecast for the country. It seems the 7.5 percent growth target is too ambitious to meet.

Addressing the Bo'ao Forum opening ceremony on April 10, Premier Li Keqiang ruled out the possibility of short-term massive stimulus policies even if the economy falters. Li's statement demonstrates China's determination to push through economic reforms even at the cost of a moderate slow-down. But it also indicates that the government may work a mini-stimulus package to achieve the growth target.

Government won't resort to short-term stimulus

World Bank pares 2014 outlook

In fact, on April 2, Li presided over a State Council executive meeting, which announced three major pro-growth initiatives, including tax breaks for small and micro enterprises, greater support for the redevelopment of run-down urban areas and investment and financing reforms in railways. This shows that the fiscal policy has finally begun to play its role and the three major pro-growth initiatives will become the pillars of this round of targeted mini stimulus.

On April 3, the monetary policy committee of the People's Bank of China said China will continue its prudent monetary policy and maintain "moderate" liquidity to achieve reasonable growth in loans and social financing. In the absence of a loose monetary policy, the fiscal policy has become the only therapy for the economy.

But can the three major pro-growth initiatives turn the tide?

China plans to invest 630 billion yuan ($101.7 billion) in railways' fixed assets and build 6,600 kilometers of tracks this year, some 1,000 kilometers more than last year. However, the fixed asset investment in the railways this year will be 60 billion yuan less than that in 2013.

On renovation of run-down urban areas, Li had said earlier that the government aims to renovate or build more than 4.7 million homes in 2014 for people living in makeshift shelters, an increase of 1.66 million housing units over last year. The investment on this front is expected to exceed 1 trillion yuan. On the basis of equal costs of renovating run-down urban areas in 2014 and 2013, the redevelopment of the additional 1.66 million homes will invite an investment of about 353.2 billion yuan.

Both the railway and urban redevelopment plans are part of the construction industry. Combining the 60 billion yuan reduction in railway construction and the 353.2 billion yuan increase in urban redevelopment, the two pro-growth initiatives can bring in new investments of 293.2 billion yuan to the construction industry.

Previous Page 1 2 Next Page

Previous Page 1 2 Next Page