Financial News

  • 4 April 2014, 6:00

China Confirms 'Mini Stimulus' To Boost GDP

The Chinese government has announced measures to help boost living standards and its economy at the same time.

The investment programme aims to deliver social housing to replace shantytowns in many cities while also accelerating railway construction.

China's Premier Li Keqiang said other measures included more tax breaks for small businesses.

The total cost of the so-called 'mini stimulus' was not disclosed.

There is pressure on the world's number two economy as it risks missing its GDP growth target of 7.5% for 2014, with official output surveys showing little sign of confidence picking up.

The programme announced by Mr Li, the country's top economic official, also showed that policymakers were highly reluctant to opt again for a strategy of massive spending and borrowing, such as the one unleashed following the financial crisis of 2008.

While the stimulus helped China's economy recover rapidly - with growth of more than a staggering 70% since 2008 - the resulting credit boom created a huge debt burden of 230% of GDP.

That debt mountain contributed to GDP growth slowing to a 14-year low of 7.7% in 2014 as spending was cut back.

Since becoming head of the ruling Communist Party in November 2012 and state president in March last year, President Xi Jinping has mounted an austerity campaign among top officials and a highly publicised crackdown on corruption that has seen some high-ranking officials sacked or charged.

China's huge export market has also been hit by factors outside its own control - namely the slow world economic recovery which dented demand for its products.

The targeted measures announced call for slum clearance to be accelerated with the China Development Bank, the country's biggest policy lender, issuing home financing bonds to help finance new social housing.

The authorities will also create a special fund worth up to 300 billion yuan (£29bn) annually to boost rail construction - a key policy aimed at reducing pollution from road traffic - with high speed bullet train lines also improving vital internal trade links.

China plans to build more than 4,000 miles of railway in 2014 alone.

The announcement represented a 25% increase in track extensions while the authorities also confirmed that western China would benefit from 80% of the investment.