China to Increase Spending on Infrastructure
China plans to boost urban infrastructure construction and to purchase more public services from social organizations in a bid to spur domestic demand, according to a State Council meeting. Money will be spent on smart power grid, underground pipelines, sewage systems, waste treatment, recycling facilities, heating systems as well as public transport.
China Records Capital Account Deficit
China recorded a current account surplus of $48.2 billion and a capital account deficit of $1.6 billion in Q2 2013, the State Administration of Foreign Exchange said. In the current account, China had a $89.9 billion surplus in goods trade and a $27.7 billion deficit in services trade. In the capital account, China netted a $45.3 billion direct investment inflow, and its international reserve assets increased by $46.6 billion.
LGFV Debt Grows Riskier
Outstanding loans owed by local government financing vehicles (LGFV) amounted to 9.7 trillion yuan as of the end of June 2013, up 6.2% from a year earlier, according to the China Banking Regulatory Commission (CBRC). Local governments established financing vehicles, which run as government-company hybrids, to get around strict borrowing restrictions and secure loans from unfettered lending after the central government announced the 4 trillion yuan fiscal stimulus in late 2008 to maintain growth against the global financial crisis. The mounting LGFV debt is believed to pose a potential threat to China's financial stability. The CBRC also said the balance of wealth management products (WMP) was 9.08 trillion yuan as of the end of June 2013, down 7% from the amount as of March 27, when the CBRC ordered tougher regulations on such products. WMPs are short-term investments disguised as deposits with higher yield than regular deposit rates.
VAT Reform to Save Firms 120 Billion Yuan
China extended its pilot value added tax (VAT) reform nationwide on August 1 and to cover more service industries including movie and TV program production and publication. The move is estimated to waive 120 billion yuan in taxes this year, the Securities Times reported. Analysts expect policymakers to roll out more actions to reform VAT by the end of 2015.
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