Cabinet plans to prevent overheating
Cary Huang in Beijing
Approval of new projects to be curbed
The State Council yesterday indicated that the central government would take steps to prevent the economy from overheating but gave no signs that it would adopt drastic measures to cool it.
In a statement issued after a meeting chaired by Premier Wen Jiabao, the council said the mainland would curb the approval of new projects and exert control over high energy consuming projects to limit the growth of fixed-asset investments.
The statement was broadcast on evening TV news and said reforms had progressed 'smoothly', pointing out that public income had risen and more jobs were being created. But it said the government had to 'pay serious attention' to problems the economy faced to 'avoid overheating'.
Although it did not say if the central bank would raise interest rates soon or adopt other credit-tightening measures, it said an 'appropriately tight' monetary policy should be followed to ensure the economy continued to grow 'in a stable and relatively fast-paced manner'.
It said the mainland faced problems like rising inflation and property prices and stressed that the government would ensure stable supply of consumer goods to avoid hoarding and speculation.
The statement admitted that the mainland faced 'excessive liquidity' in the market and also addressed the rapidly rising trade surplus with other countries, saying the government would 'actively encourage imports'.
Last month, the mainland's trade surplus widened to a larger-than-expected US$22.45 billion, up 73 per cent from a year earlier. Exports during the month totalled US$94.05 billion, up 28.7 per cent from the same period last year. In the first five months of the year, the surplus has climbed more than 80 per cent compared with the same period last year.
Commerce Ministry spokesman Yao Shenhong said Beijing planned to adjust its import and export tax policies further to address the soaring trade surplus.
'We will issue more measures to improve our import and export tax policies to balance our trade,' Mr Yao said when asked if there would be further adjustments of the export tax rebate on July 1.
Mr Yao did not give details of any tax changes but said Beijing had been slowly dismantling the export tax rebate regime and reducing import tariff in recent years in a bid to bring down a trade surplus which started accelerating this year.
Market rumours have circulated that the value-added tax rebates on exports of some raw material products would be cut or eliminated.
Beijing has cut tax rebates on exports and raised export duties since last year to curb exports of base metals and base-metal products.
On June 1, Beijing began imposing taxes of 5 to 10 per cent on exports of more than 80 types of steel products. It recently reduced or scrapped value-added tax rebates on a range of energy-intensive products.
Beijing has said repeatedly that it wants to reduce the surplus and move away from export-led growth but policies to boost imports and consumption have had little effect.
Mr Yao declined to estimate the full-year trade surplus, but said it would depend on the impact of the macroeconomic policies in the second half. The government's top planning agency recently said that it would probably jump about 40 to 70 per cent this year.
The surplus would reach between US$250 billion and US$300 billion this year, up from US$177.5 billion, the National Development and Reform Commission reported.
Bo Xilai , Minister of Commerce, has said the trade surplus is caused by structural factors, with manufacturing previously located in Japan and South Korea moving to the mainland. And this is evident as foreign investment on the mainland continued to grow.
The mainland approved fewer joint ventures but attracted more foreign direct investment (FDI) in the first five months, indicating it is still a popular destination of overseas capital, Mr Yao said. Its actual FDI in May totalled US$4.899 billion, up 8.6 per cent from a year earlier, compared with April's 5.49 per cent growth rate. However, a total of 15,072 joint ventures were approved by the ministry from January to May, down 3.75 per cent year on year, he said.
Mr Yao said that on Tuesday in Brussels Mr Bo and European Union Trade Commissioner Peter Mandelson had agreed on more than 10 issues, including textile and steel. He said Beijing and the EU also agreed to revise the 1985 Trade and Economic Co-operation Agreement, as the trade situation had changed substantially over the past two decades.
A total calculation would make you realise that our real trade surplus is not as huge as you would imagine
Commerce Minister Bo Xilai, June 11
A large section of the American public doesn't believe that the benefits of trade are being shared equally between or within our two countries, and Congress reflects that view
US Treasury Secretary Henry Paulson, June 5
When you look at the deficits and what reserves China has and the trade balance, there's really more need to move the renminbi now than there was in July 2005
US Treasury Secretary Henry Paulson, June 7
China's exchange rate reform will be advanced in an orderly way, based on the principles of self-initiative, controllability and gradualism
Vice-Premier Wu Yi, May 24