China’s Li Vows Support Measures From Rail to Tax Breaks

Chinese Premier Li Keqiang said the nation will speed railway construction, especially in central and western regions, adding support for an economy that’s set to expand at the slowest pace in 23 years.

The State Council also yesterday approved tax breaks for small companies and reduced fees for exporters as it pledged to keep the yuan’s exchange rate “basically stable at a reasonable and balanced level,” according to a statement after a meeting led by Li. China plans a railway development fund, the government said.

Additional spending would help the world’s second-largest economy, after the government signaled this week it will protect its 7.5 percent growth target for this year following a second straight quarterly slowdown. Economists surveyed by Bloomberg News cut expansion forecasts this month, reaching a new median estimate of 7.5 percent, which would be the lowest since 1990.

“Premier Li’s team has been surely working around the clock” to arrest the slowdown, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “It’s a small stimulus” that may boost confidence while having a limited effect in boosting demand, Lu said by e-mail today.

The Shanghai Composite Index fell 0.1 percent as of the 11:30 a.m. local-time break. CSR Corp., the nation’s biggest trainmaker, rose 4.6 percent, while China Railway Construction Corp. jumped 5.1 percent.

Investment Boost

The State Council is targeting 690 billion yuan ($112 billion) of fixed-asset investment in the railway industry this year, the Beijing News reported today, citing a summary of the meeting. That compares with a 650 billion yuan figure given in a rail-bond prospectus published July 19.

For the five years through 2015, the cabinet set a goal of investing 3.3 trillion yuan, or 500 billion yuan more than in the previous plan, according to the Beijing News. The State Council Information office didn’t immediately respond to a faxed question from Bloomberg News on the authenticity of the newspaper report.

Investors are looking for signs of additional support measures after exports fell last month by the most since the global financial crisis. China’s manufacturing weakened more than estimated in July, according to a preliminary survey of purchasing managers released yesterday.

Yuan Concern

The cabinet’s comment on the yuan may signal concern about burdens on exporters. The currency has risen 1.5 percent this year against the U.S. dollar, the most among 11 major Asian currencies tracked by Bloomberg, and the yuan is up 17 percent against the yen as Japan implements record monetary easing to beat deflation. The yuan was little changed today at 6.1380 per dollar at 11:34 a.m. in Shanghai.

The yuan comment indicates that the central bank won’t allow the currency to appreciate against the dollar from the current level, though it may also prevent depreciation, Lu said.

Separately today, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, said at a briefing in Beijing that while employment in the nation is stable, China will face large pressure on jobs and focus on finding jobs for university graduates.

Resolutions passed at yesterday’s cabinet meeting included the exemption of companies with monthly sales of less than 20,000 yuan from value-added and business taxes starting Aug. 1, according to the statement. The move will benefit more than 6 million small businesses and affect jobs and income of tens of millions of people, the government said.

China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to yesterday’s statement.

Private Investors

The government also plans to grant ownership and operating rights on some city and regional railways to local government and private investors.

“To get rich, you must build roads first, especially railroads,” Li was cited by the official Xinhua News Agency as saying at the meeting. Accelerating railway construction brings “multiple benefits” by promoting urbanization, stabilizing growth and improving people’s lives, Li said.

Delegates to the National People’s Congress from central and western provinces have told Li that the area’s rail system is “still underdeveloped, and people there are eagerly looking forward to more railways,” he said, as cited by Xinhua.

Targeted Spending

“I suspect that we will see a lot of announcements of targeted spending over the next few months,” said Mark Williams, a former U.K. Treasury adviser on China who is now a London-based economist at Capital Economics Ltd. “They may not add up collectively to much of a stimulus but they reflect efforts to really stabilize growth at the current level.”

President Xi Jinping called on the nation to “enhance vitality” of the state-run economy and encourage, support and guide the development of the private sector after meeting provincial leaders in Wuhan, according to another Xinhua report.

Separately, government agencies including the National Development and Reform Commission vowed to improve measures to cut drug prices this year and push forward public hospital reform, according to another statement on the central government’s website.

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