One trillion yuan subsidies for firms hit by export slowdown
Beijing is set to help companies in need to counter slower exports. This could put stoke an already high inflation and reduce the purchasing power of hundreds of millions of people for the sake of growth.
Beijing (AsiaNews/Agencies) – Beijing might inject more than 1 trillion yuan (US$ 158 billion) to boost the economy in the next two months via annual subsidies from the Ministry of Finance, this according to the official China Securities Journal, which quoted a research report by the China International Capital Corporation (CICC). The measure is due to lower exports to Europe and the United States. Experts warn however the move might help companies but also push up inflation.
The injection of liquidity was necessary the report said because of the tight monetary policy the government put in place since October of last year to contain inflation.
The Finance Ministry typically offers subsidies to various industries and sectors in the last two months of each year. Even though it does not publicise these subsidies, they were estimated to be around 1 trillion to 2 trillion yuan last year.
Inflation now appears to have taken a backseat. The People's Bank of China (PBOC) has not raised interest rates or bank reserve requirement ratios (RRR) since July. Previously, it had increased them several times to control record level inflation.
Still, China could face resurgent inflationary pressure if it relaxes monetary policy too soon in order to help companies, experts believe. Although tamed, inflation has not been beaten as rising food prices attest.
“It is hard to say whether inflation pressure has been fully curbed or not, so we cannot relax money supply in the future to stabilise economic growth. Otherwise, it may add fresh pressure to inflation,” Fan Jainping, chief economist at the State Information Centre think tank, was quoted as saying.
Fan added that the Consumer Price Index might ease back to 5.5 per cent in October and inflation may cool further by the end of this year, after it dipped to 6.1 per cent in September, retreating further from a three-year high of 6.5 per cent in July. However, food price inflation is still in double digits, badly hurting middle-income earners and rural communities.
Overall, Beijing appears to be more interested in maintaining high growth rates. In fact, China's economic growth is expected to slow to “only” 8.8 per cent in the fourth quarter of this year.
Li Daokui, an academic adviser to the central bank, said last week that China's gross domestic product growth might moderate to 8.5 per cent next year from an estimated 9.2 per cent this year.
In October, the authorities unveiled new measures to encourage banks to lend more to small firms, which have been badly hit by the worldwide economic downturn.
The injection of liquidity was necessary the report said because of the tight monetary policy the government put in place since October of last year to contain inflation.
The Finance Ministry typically offers subsidies to various industries and sectors in the last two months of each year. Even though it does not publicise these subsidies, they were estimated to be around 1 trillion to 2 trillion yuan last year.
Inflation now appears to have taken a backseat. The People's Bank of China (PBOC) has not raised interest rates or bank reserve requirement ratios (RRR) since July. Previously, it had increased them several times to control record level inflation.
Still, China could face resurgent inflationary pressure if it relaxes monetary policy too soon in order to help companies, experts believe. Although tamed, inflation has not been beaten as rising food prices attest.
“It is hard to say whether inflation pressure has been fully curbed or not, so we cannot relax money supply in the future to stabilise economic growth. Otherwise, it may add fresh pressure to inflation,” Fan Jainping, chief economist at the State Information Centre think tank, was quoted as saying.
Fan added that the Consumer Price Index might ease back to 5.5 per cent in October and inflation may cool further by the end of this year, after it dipped to 6.1 per cent in September, retreating further from a three-year high of 6.5 per cent in July. However, food price inflation is still in double digits, badly hurting middle-income earners and rural communities.
Overall, Beijing appears to be more interested in maintaining high growth rates. In fact, China's economic growth is expected to slow to “only” 8.8 per cent in the fourth quarter of this year.
Li Daokui, an academic adviser to the central bank, said last week that China's gross domestic product growth might moderate to 8.5 per cent next year from an estimated 9.2 per cent this year.
In October, the authorities unveiled new measures to encourage banks to lend more to small firms, which have been badly hit by the worldwide economic downturn.
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