China announces package of measures to boost businesses

China rolled out a broad package of measures to support businesses and stimulate demand, as it tried to offset the damage caused by Covid lockdowns on the world's second-largest economy.

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The measures include 140 billion yuan $21 billion in additional tax rebates and 300 billion yuan in railway construction bonds, according to a report from the China s State Council, chaired by Premier Li Keqiang.

The government s total reduction in taxes this year will be 2.64 trillion yuan compared to the relief Beijing offered in 2020 after China was first hit by the Pandemic, and the additional tax cuts represent about 0.1% of China's gross domestic product last year.

Economists were cautious about whether the measures would give a significant boost to growth as China s strict Covid-Zero policy causes major disruption to business activity. Many economists think the government won't meet its annual GDP growth target of 5.5% this year, with UBS Group AG downgraded its projection to just 3% for this year.

The Nomura Holdings Ltd. economists led by Lu Ting wrote in a note that they believe these measures will provide some help and alleviate the severity of the growth slowdown or even contraction.

The policies are intended to stabilize the economy, according to the State Council. It said that China will improve policies to help supply chains function, make domestic cargo transportation run smoothly and increase the number of domestic and international flights.

The report said that the measure is expected to amount to 320 billion yuan and will extend an existing delay on companies' social-insurance contributions to the end of the year. The meeting said that a quota for loans aimed at small and medium-sized enterprises would be doubled.

The meeting said that it would be up to cities to set their own support measures in response to the slump in China's property market. The country will launch a series of infrastructure projects in areas such as water, the renovation of old housing, energy security and underground pipe, according to the meeting.

In recent weeks, Beijing has widened the scope of tax relief policies but hasn't revised its fiscal targets for the year, which were set in early March before the omicron variant prompted a strict lockdown of Shanghai and tight restrictions in other major urban centers. The government said it would provide tax relief this year worth about 2.5 trillion yuan, including 1.5 trillion yuan in rebates.

The latest report did not state how the additional tax cuts will be funded or if they will require a revision of Beijing's official deficit target for the year.

Bloomberg Economics slashed its forecast for China's growth to 2% last week due to the lockdown impacts, estimating that the U.S. economy may grow faster than China's for the first time since 1976.

China's financial support for lock-down-stricken areas has mostly gone to companies rather than households, leading prominent economists to call for cash handouts to consumers.

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