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China tries to revive economy despite daunting challenges (4) |
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13:57, November 09, 2008 |
POLICY ADJUSTMENT
To minimize the negative economic impacts and maintain stable, relatively fast growth, the government made a new policy shift in the current round of macro controls that was initiated despite the high risk of economic overheating.
Challenged by coincidence of increasing uncertainties abroad and problems and contradictions at home, the economy slowed along with the economic downturn worldwide.
GDP growth ebbed to 10.1 percent in the second quarter from the first quarter's 10.6 percent level, and dropped further to 9 percent in the third quarter.
The government changed the macro-control policy of preventing overheating and curbing inflation, which was adopted at the end of last year, to a principle of maintaining growth and taming inflation.
"China has to upgrade its economic growth structure. Exports cannot grow fast in the near future -- it is the right time for the government to boost domestic demand and stimulate consumption," said Zuo Xiaolei, China Galaxy Securities chief economist.
Worrying about a cooling economy and other domestic problems amid a deepening world credit crisis, the People's Bank of China, the central bank, cut the RMB benchmark deposit and loan rates of financial institutions, both by 0.27 percentage points, from Oct. 30. The one-year benchmark deposit rate was lowered from 3.87 percent to 3.6 percent and the loan rate from 6.93 percent to 6.66percent.
It was the third interest rates cut in two months. This was a timely response to the rate cuts by other central banks worldwide and part of a coordinated effort to stem the global financial crisis.
The central bank also cut the reserve-requirement ratio for smaller lenders to bail out struggling smaller businesses. Then it slashed the ratio for all commercial banks.
The State Council, or cabinet, also scrapped the 5 percent individual income tax on savings interest earnings from Oct. 9. The same day, it scrapped the tax on the interest income of individual stock accounts, aiming at stable development of the capital market.
The doubling of the per-capita disposable income of rural residents by 2020 from the 2008 level was decided at the third Plenary Session of the 17th Communist Party of China (CPC) Central Committee, held from Oct. 9 to 12 in Beijing.
Per-capita disposable income was 4,140 yuan in rural areas in 2007, a year-on-year gain of 9.5 percent in real terms. A rise of at least 6 percent was expected for 2008, according to a government report in March. The rural population mired in absolute poverty was reduced to 15 million last year, down from 250 million in 1978.
Stamp duty was also scrapped. The real estate sector, once overheated, plunged into recession as the government had limited bank loans for property developers in a move to restrain runaway housing prices.
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