BusinessGlobal Economy

China unveils new growth measures as economy dips

Premier Li Keqiang announces policies to boost nation's flagging growth as closely watched survey of manufacturers falls to lowest in 11 months

PUBLISHED : Thursday, 25 July, 2013, 12:00am
UPDATED : Thursday, 25 July, 2013, 9:41am

Beijing unveiled a slew of fiscal and investment measures yesterday to combat slower economic growth as a new survey of manufacturers revealed an unexpected weakening in the sector.

The flash HSBC/Markit Purchasing Managers' Index released yesterday showed output, employment and new orders all falling at a faster pace in July and the employment sub-index sliding to its weakest since the depths of the global financial crisis in early 2009.

The new measures came on the heels of Premier Li Keqiang's pledge to prevent economic growth and employment from slipping too far. Gross domestic product growth slowed in the second quarter while exports in June fell for the first time this year.

Li held a State Council meeting yesterday to announce the new measures, which included exempting small companies - those with monthly sales of less than 20,000 yuan - from value-added and sales taxes and reducing taxes on exports. Keeping the yuan exchange rate stable was another measure.

The cabinet said it would allow private capital to invest in railway construction and accelerate the building of railways in underdeveloped central and western regions.

"These are fine-tune measures by the government, while maintaining the general policies stable, as worrying exports figures and the difficulties facing small businesses put the economy under pressure," said Li Huiyong, chief economist at Shanghai-based SWS Research.

Li Huiyong, however, said the steps would not affect demand. He expected the government to take further steps, including expanding financing channels for companies and local governments and launching new projects - such as social housing, highways and urban rail - in the months to come in order to maintain economic growth at about the target of 7.5 per cent.

The weakness in manufacturing threatens to hit the job market, which could add to the pressure on Beijing to roll out further steps to revive growth. The government has so far ruled out any large-scale stimulus out of fear of adding to financial risk.

These are fine-tune measures by the government, while maintaining the general policies stable, as worrying exports figures and the difficulties facing small businesses put the economy under pressure
Li Huiyong, chief economist at Shanghai-based SWS Research

China's overall PMI of business conditions fell to 47.7 from June's final reading of 48.2, the third straight month the figure came in below the watershed 50 line and the weakest since August 2012. The employment sub-index slid to 47.3 in July.

"This print could reignite fears of a Chinese hard landing," said Annette Beacher, head of Asia-Pacific research at TD Securities. "We expect economic growth to continue moderating toward 7 per cent."

While the PMI figures from China were worrying, those from the euro zone unexpectedly showed the region bouncing back to growth. Markit's flash Eurozone Composite PMI, based on surveys of thousands of companies across the region, jumped to an 18-month high of 50.4 in July from 48.7 in June - the first time the gauge has signalled expansion since January 2012.

"Better-than-expected PMI figures clearly support the notion that the euro-zone economy as a whole is leaving recession behind," said Martin van Vliet of ING, the biggest Dutch financial-services firm.

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