China extends, adjusts pro-consumption policies

AP News
Posted: Dec 10, 2009 1:59 AM

China has moved to support its economic recovery by extending tax cuts and subsidies for purchases of small vehicles and appliances, while adjusting some measures to counter rising property prices.

Wednesday's announcement follows China's annual economic strategy meeting, with leaders promising Monday to keep economic stimulus and easy credit policies in place.

Domestic demand is seen as crucial for future growth, but economists say consumer spending accounts for less than half of China's economic activity.

The State Council statement posted online Wednesday says China should continue its current policies, including subsidies, to push consumption.

A tax cut on sales of cars with engines of 1.6 liters or smaller was extended until the end of next year, but the tax was raised to 7.5 percent from the current 5 percent _ a rate slashed by half earlier this year to counter a slump in sales due to the global downturn.

Subsidies would be raised from the current rate of up to 5,000 yuan ($878) to as high as 18,000 yuan ($2,600) for purchases of some vehicle models. But they do not apply to any vehicles with engine capacity bigger than 2 liters, the statement said.

The announcement was a further boon to automakers who have done a booming business this year, with total sales exceeding 12 million units by November, up 42 percent over a year earlier according to the China Association of Automobile Manufacturers. Of that total, 85 percent have been small vehicles.

In a move aimed at countering speculation in real estate that has drawn complaints that housing prices are becoming unaffordable for many families, the government reintroduced a 5.5 percent business tax on sales of homes bought less than five years earlier.

The tax had been suspended last year as property sales slumped as the economy slowed due to plunging exports.

China's inflation rate has remained moderate this year, with the consumer price index falling 0.5 percent in October from a year earlier. That has enabled leaders to keep stimulus policies in place. But officials have said they will adjust credit regulation and other policies to counter price pressures in some sectors if needed.

The State Council document issued Tuesday pledged to help resolve the housing difficulties of low and middle-income urban families by the end of 2011, adding 1.3 million units of so-called affordable homes per year.