BEIJING (BLOOMBERG) - China rolled out a broad package of measures to support businesses and stimulate demand as it seeks to offset the damage from Covid lockdowns on the world's second-largest economy.
The 33-point package includes 140 billion yuan (S$29 billion) in additional tax rebates and 300 billion yuan in railway construction bonds, Xinhua News Agency reported, citing a decision from a meeting of China's State Council, the cabinet, chaired by Premier Li Keqiang.
"Without a certain level of GDP growth, stable employment cannot be realised," Mr Li said. "One good thing is that we refrained from excessive money supply and mass stimulus in the past few years, and we still have policy tools in reserve."
The additional tax cuts represent about 0.1 per cent of China's gross domestic product (GDP) last year, and push the government's total planned reduction in taxes this year to 2.64 trillion yuan - slightly more than the relief Beijing offered in 2020 when China was first hit by the pandemic.
Economists were cautious about whether the measures would provide a material boost to growth, as China's strict Covid-zero policy causes major disruption to business activity. Many economists expect the government won't meet its annual GDP growth target of about 5.5 per cent this year, with UBS Group AG the latest to downgrade its projection to just 3 per cent.
"We believe these measures will provide some help and alleviate the severity of the growth slowdown or even contraction, but we remain cautious about growth prospects for this year," Nomura Holdings economists wrote in a note.
Auto stocks rallied on Tuesday (May 24) on measures to relax curbs on auto purchases and reduce the tax on some passenger vehicles by a total of 60 billion yuan. However, the stimulus measures did little to boost overall market sentiment, with the benchmark CSI 300 Index falling as much as 0.9 per cent in the morning session.
The State Council said the policies are intended to "stabilise" the economy and get it back onto its normal track. The authorities will improve policies to help supply chains function, ensure domestic cargo transport runs smoothly and increase the number of domestic and international flights, it said.
Beijing will extend an existing delay on companies' social-insurance contributions to the end of the year and expand the measure to more sectors, according to the report, with those deferred payments expected to amount to 320 billion yuan.
A quota for loans aimed at small and medium-sized enterprises would be doubled, it said.
China's financial support for lockdown-stricken areas has mostly gone to companies rather than households, leading prominent economists to call for cash handouts to consumers.
Mr Justin Lin Yifu, a former World Bank chief economist, recently called for support of 1,000 yuan to families in areas under lockdown to support consumption.
The State Council urged local governments to speed up spending, asking them to use the proceeds of special bonds by the end of August. The scope of the funds will also be expanded to include new technology-focused infrastructure.
Separately, calls have been growing for the government to sell "special sovereign bonds", as it did in 2020, to pay for the extra stimulus.
To stimulate demand, the State Council said it would be up to cities to set their own support measures and relax restrictions on car purchases.
