Policy adjustment

To minimize the negative economic impacts and maintain stable, relatively fast growth, the government made a new policy shift in the current round of macro controls that was initiated despite the high risk of economic overheating.

Challenged by coincidence of increasing uncertainties abroad and problems and contradictions at home, the economy slowed along with the economic downturn worldwide.

GDP growth ebbed to 10.1 percent in the second quarter from the first quarter's 10.6 percent level, and dropped further to 9 percent in the third quarter.

The government changed the macro-control policy of preventing overheating and curbing inflation, which was adopted at the end of last year, to a principle of maintaining growth and taming inflation.

"China has to upgrade its economic growth structure. Exports cannot grow fast in the near future -- it is the right time for the government to boost domestic demand and stimulate consumption," said Zuo Xiaolei, China Galaxy Securities chief economist.

Worrying about a cooling economy and other domestic problems amid a deepening world credit crisis, the People's Bank of China, the central bank, cut the RMB benchmark deposit and loan rates of financial institutions, both by 0.27 percentage points, from October 30. The one-year benchmark deposit rate was lowered from 3.87 percent to 3.6 percent and the loan rate from 6.93 percent to 6.66percent.

It was the third interest rates cut in two months. This was a timely response to the rate cuts by other central banks worldwide and part of a coordinated effort to stem the global financial crisis.

The central bank also cut the reserve-requirement ratio for smaller lenders to bail out struggling smaller businesses. Then it slashed the ratio for all commercial banks.

The State Council, or cabinet, also scrapped the 5 percent individual income tax on savings interest earnings from October 9. The same day, it scrapped the tax on the interest income of individual stock accounts, aiming at stable development of the capital market.

The doubling of the per-capita disposable income of rural residents by 2020 from the 2008 level was decided at the third Plenary Session of the 17th Communist Party of China (CPC) Central Committee, held from October 9 to 12 in Beijing.

Per-capita disposable income was 4,140 yuan in rural areas in 2007, a year-on-year gain of 9.5 percent in real terms. A rise of at least 6 percent was expected for 2008, according to a government report in March. The rural population mired in absolute poverty was reduced to 15 million last year, down from 250 million in 1978.

Stamp duty was also scrapped. The real estate sector, once overheated, plunged into recession as the government had limited bank loans for property developers in a move to restrain runaway housing prices.

The People's Bank of China lowered the minimum down-payment for a first home with a floor space of more than 90 square meters to 20 percent from 30 percent as of October 27.

Property prices in major Chinese cities increased 3.5 percent in September from a year ago, the slowest pace in more than three years. Insiders said the hefty transactions costs had failed to curb property speculation and deterred consumers from buying.

To help exporters cope with smaller profit margins, the yuan's appreciation and rising production costs, the government raised tax rebates for a quarter of total exported goods from Nov. 1. The trade surplus shrank 2.6 percent in the first three quarters from a year earlier sapped by weakening foreign demand.

The adjustment involved 3,486 items from labor intensive industries, including textiles, garments, toys hi-tech and high added value sectors like anti-AIDS drugs and tempered glass.

The export tax rebate for textiles and garments, for instance, was raised to 14 percent, shortly after the previous rise from 11 to 13 percent on August 1.

China's textile exporters, who would enjoy higher profits with the rise of the export rebate rate, welcomed the rise, but said it was still not enough.

"The rise of export tax rebate will help boost textiles exports, but the effect is not obvious enough," said Fan Min, chief analyst of China Web Textiles, a website of the country's textile industry. "We need to elevate the export rebate to 17 percent to bring about obvious benefits to textile enterprises."

Many exporters find it just as hard to edge into the domestic market as the foreign markets.

One way to survive is to develop "necessity products" for foreign buyers.

At the Canton Fair, Ningbo Greenland Garment Co. Ltd. received more than 100 orders in two days at its stand, largely from Europe and Russia.

The secret, said Yang Jianzhong, boss of the plant, was its down and feather garments. Signed orders had met 80 percent of the plant's processing capacity.

"Although Europe is also affected by the global economic slowdown, down clothing is still needed for people of Russia, France, the Netherlands and Poland in winter. And we design them more fashionably," said Yang.

Many other businesses are turning to Russia, the Middle East and Eastern Europe, where demand appears strong.

"Our orders largely came from Russia and Ukraine on the Canton Fair. We had barely any orders from Western Europe and the United States," says Lou Qijin.

"We have to shift our strategy. We are busy replacing toy packages with Russian notes and we are adjusting products to show Russian styles," said Lou.

He estimates the Russian market has accounted for 30 percent of Christmas gift exports in Yiwu. Exports to the Middle East and Brazil, which are further from the financial turmoil, increased considerably to offset drops to Western Europe and the United States.

"We have to speed up our business in Russia. We will be finished if the Wall Street financial tsunami freezes Russian consumption one day," said Lou.

(Xinhua News Agency November 9, 2008)