Beijing Moves in to Bolster Sluggish Economy through Infrastructure Spending, Tax Cuts

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Beijing Moves in to Bolster Sluggish Economy through Infrastructure Spending, Tax CutsChina moved in for the first time in 2014 to bolster its faltering economy by lowering taxes for small firms on Wednesday and saying it will accelerate the pace of railway construction.

Its cabinet disclosed after its weekly meeting of its plans to hasten construction of approved railway projects, increasing by 18 percent the total length of railroad that will be laid this year up from last year, wrote Reuters.

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The government has also instituted a policy that extends to 2016 that reduces the tax rates of smaller firms. The plans constitute the first meaningful action taken by the Beijing this year to support the flagging economy, as markets fretted whether the government will take any action.

Two recent reports released this week show that China’s factory activity faced various challenges in March, fuelling speculation that the economy is slowing down much quicker than estimated.

“We will find innovative ways including fiscal and financial methods to…steady economic growth,” said the cabinet in a statement posted on the government’s website.

Beijing announced in March that it targets an economic growth of about 7.5 percent this year. Construction of more railway lines is expected to trigger investment, which drives much of China’s economy, and which has been growing at its slowest pace in over a decade as the country shifts slowly to consumption as its growth driver.

The government will sell 150 billion yuan of bonds and raise funds from banks to finance more than 6,600 kilometres of fresh railway tracks. Beijing also announced plans to form an annual fund valued at 200 billion yuan ($32.2 billion) to 300 billion yuan per year that will be open to private investors to help finance the railway construction.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com