Economy heals as companies revive (2)

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Economy heals as companies revive (2)

By Chen Jia (China Daily) 14:05, August 22, 2013

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The State Council, the cabinet, announced several steps after first-half and second-quarter economic indicators were released. Chief among those indicators was GDP growth, which slid to 7.5 percent in the second quarter from 7.7 percent in the first.

The measures included suspending taxes for small businesses, boosting information consumption and promoting railway investment in the second half.

"That is not a new stimulus package," said Fan. He said it was "quite different" from the aggressive, 4 trillion yuan ($653 billion) investment plan that followed the global financial crisis in 2008.

All the measures announced so far are in line with the 12th Five-Year Plan (2011-15), according to Fan.

"We can expect more on economic reforms in the second half, especially that the government will additionally remove administrative approval requirements for enterprises."

Wang Tao, chief economist in China with UBS AG, said that the pickup in July may reflect to some extent the delayed impact of strong credit growth earlier in the year.

"It has also been helped by improved confidence after the government's announcement that it would support growth with some fine-tuning measures," she said.

"But the recovery will depend on the strength of external and domestic demand, as well as future policies, and it is going to be modest."

As to the external environment, headwinds will come from moderate recoveries in the United States and Europe, as well as uncertainties in emerging market growth, especially when developed countries such as the US phase out quantitative easing.

On the domestic front, China is still one of the places in the world with a fast-growing consumption growth rate, and that will be a key driver of the economy. Investment in projects to improve living standards, such as low-income housing, will not be scaled back, even though the central government's fiscal income growth has slowed, Fan said.

Stephen Green, chief economist in China at the Standard Chartered Bank, said that he expected no change in the central bank's one-year benchmark interest rate before the end of 2014.

More reforms are expected to liberalize interest rates, because the current benign inflation environment offers good opportunities, Green said.

In the first seven months, the average consumer price index was 2.46 percent, much lower than the year's target of 3.5 percent.