Beijing urged to cut taxes and invest in infrastructure to safeguard jobs
Slowest growth in six years for mainland economy prompts employment fears and calls for action
Beijing should cut taxes and accelerate public infrastructure investment to revive the mainland's economy, analysts said yesterday, after the country recorded its slowest quarterly growth in six years, raising fears for employment.
They warned that if the economy slowed further, high financing costs could prompt companies to cut jobs, something the Communist Party is keen to avoid to maintain social stability.
National Bureau of Statistics spokesman Sheng Laiyun said unemployment remained flat at 5.1 per cent, unchanged from last year - something Premier Li Keqiang has attributed to job creation in the booming e-commerce sector.
But he cautioned that unemployment was a lagging indicator. "As the efforts deepen on structural adjustment and industrial upgrades, it would be normal for employment pressure in some regions to intensify," he said. "We must not lose our guard."
The 7 per cent year-on-year growth in the first quarter, disclosed yesterday, slowed from 7.3 per cent in the previous quarter. This only just met the official annual target.
The State Council said it would prioritise reforms to revive markets, citing more public-private partnerships that could attract social investment.
Beijing cut interest rates in February, followed by the first nationwide easing of controls on home purchases. It also reduced administrative fees and lowered the resources tax for iron ore producers.
But a prolonged real estate downturn saw fixed-asset investment rise only 13.5 per cent in the first quarter from a year earlier, compared to growth of 17.6 per cent this time last year. Industrial output rose 5.6 per cent in March. Both these were the worst since the global financial crisis, while property investment growth eased to a six-year low.
On Sunday, Li urged provincial leaders in the northeastern industrial base to meet growth targets. On Tuesday, he pledged measures to ease pressure on the economy.
UBS Securities economist Wang Tao, who was invited to Li's meeting, said the government should accelerate infrastructure investment with the help of a more proactive fiscal policy and financing from policy lenders.
She said there was still room for relaxing property controls. The government should also lower policy rates to reduce corporate borrowing costs, which remained 100 basis points higher than the level in the fourth quarter, she told Li.
Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch Ratings, said: "It's sobering that the economy has become so reliant on construction and real estate to generate jobs. The ongoing correction in the real estate sector poses the biggest single risk to Fitch's outlook."
The agency predicted GDP growth to slow to 6.8 per cent this year from 7.4 per cent last year.