China stimulus plan invests in rail, construction

China has outlined a stimulus package designed to boost spending on railways and encourage other construction investment after signs its economy is slowing to below Premier Li Keqiangs target of 7.5 per cent growth this year.

The State Council released plans on Wednesday to sell $24 billion US of bonds this year to build railways in the less-developed central and western regions. China has been a major buyer of U.S. Treasury Bills.

It also plans a $35-billion fund dedicated to rail financing and will increase financing to build low-cost housing.

We must roll out policies that spur businesses vitality, effectively increase demand and boost jobs, the government said.

China is attempting to speed up construction projects after economic indicators earlier this year pointed to a slowdown in manufacturing and retail sales.

The Asian Development Bank issued a report today estimating that Chinas GDP grew 7.7 per cent in the final quarter of 2013, but would drop to 7.5 per cent in 2014 even amid higher social spending. High local government debt as well as the credit crunch will drag down growth, the ADB said.

GDP is forecast to decline again to 7.4 per cent in 2015, even though the rest of the world is expected to recover and increase its demand for Chinese goods, the ADP said.

A purchasing managers index for March issued yesterday was at just 50.3, highlighting persisent weakness in China's manufacturing sector.

Premier Li is attempting to boost investment to keep the economy creating jobs, critical in a country with very uneven development, and to ensure GDP growth hits its 7.5 per cent target for the year.

He also must balance sustaining growth and employment with reining in a credit surge that is threatening Chinese banks and widespread concern about pollution in China.

China will extend a preferential tax policy to more small companies and increase investment in its program to replace shantytowns with more stable housing.

Accelerating shantytown transformation and getting millions of residents into modern buildings can forcefully drive investment and promote consumption, the State Council said. The government has allocated more than 1 trillion yuan ($178 billion) this year to redeveloping shantytowns.

Railways are a priority to link underdeveloped regions to the booming coastal cities and boost growth in central and western China. The State Council announced plans to build more than 6,600 km of new rail lines this year.