Huge New Economic Stimulus Package Unveiled
invest.insidechina.com
BEIJING, Aug 31, 1999 -- (Reuters) China unveiled a huge new stimulus package on Monday aimed at reviving the flagging economy by spending on infrastructure and flushing money out of private bank accounts.
At the same time, the government promised help to the growing ranks of jobless and struggling pensioners.
State media said parliament approved a 60 billion yuan ($7.25 billion) bond issue and cleared the way for the first-ever tax on interest from individual bank deposits in yuan and foreign currencies.
Finance Minister Xiang Huaicheng was quoted as saying the bond issue could have a stimulus effect worth 300 billion yuan, mainly by expanding bank lending.
Xiang said Beijing's fiscal policy was aimed at "boosting investment, expanding consumption and stimulating exports".
By punishing savers the government hopes to encourage consumption and end almost two years of deflation. Individual bank deposits are now at 5.92 trillion yuan and rising fast.
Last year, China notched up growth of 7.8 percent, largely thanks to infrastructure spending funded by 100 billion yuan in state debt and a matching amount in lending by state-owned banks.
The interest tax is likely to dismay the nation's avid savers, who are setting aside money for a rainy day amid rising unemployment and the collapse of the socialist welfare state.
Savers have few places to put their cash outside the state banks and have ignored repeated signals to spend in the form of interest rate cuts.
Analysts said it was unclear whether the latest move would spur China's frugal masses to splurge.
Chi Lo, chief Asia economist at HSBC Markets in Hong Kong, said the tax "will not be that effective in boosting consumption if people's outlook for jobs and income growth remain very poor."
He welcomed the bond issue as part of necessary moves to boost fiscal spending but warned that this alone would not be able to rescue faltering growth.
"The heart of the problem is deflation, which sums up people's poor expectations of economic performance, future income flow and jobs," he said.
China's benchmark inflation indicator, the retail price index, has been negative for 22 months since October 1997. The economy grew 7.6 percent in the first half of this year, but is now slowing with annual second-quarter growth estimated at 7.1 percent against first-quarter growth of 8.3 percent.
The government was careful to balance bad news for bank savers with good news for the most vulnerable sections of society -- the unemployed, elderly and low-paid urban workers.
Xinhua news agency quoted Xiang as saying revenues from the bank interest tax would be used to increase subsidies and allowances for laid-off state workers, raise minimum incomes among urban dwellers and meet pension payments that are badly in arrears.
The China Daily newspaper quoted minister of Labor and Social Security Zhang Zuoji as saying social security payments to millions of laid-off workers would be boosted by 30 percent, effective July 1.
Zhang said the extra payments would be worth 24.5 billion yuan this year.
In a sign of growing official unease, he said the jobless would receive the extra cash before October 1, when China marks its 50th anniversary as a Communist state and will be anxious to showcase social stability.
Xinhua said the Standing Committee of the National People's Congress, or parliament, struck off personal savings accounts from a list of non-taxable income.
However, the official news agency indicated that lawmakers were divided over how the tax should be implemented.
It said parliament kicked the issue over to the cabinet to decide "due to the suggestion by some legislators that low-income depositors should not be taxed as heavily as the newly rich".
State media have speculated that parliament would adopt a flat tax, possibly set at 20 percent |
