INCREASED SPENDING AND REFORMS COULD BOOST DOMESTIC CONSUMPTION
By Thomas Clouse
In his final annual work report to the National People’s Congress, outgoing Chinese premier Wen Jiabao set the country’s 2013 GDP growth target at 7.5% and pledged to improve social services and strengthen environmental protection.
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The official budget, released on the same day as Wen’s report, called for a 10% increase in spending and raised the limit on local government bond issuance to Rmb350 billion ($56 billion), up from Rmb250 billion last year. Wen also called for accelerated reform of China’s residency system, which differentiates benefits and working restrictions based on urban and rural classifications. The spending increase and reforms should narrow the income gap between rural and urban residents and help boost domestic consumption.
China imposed a 20% capital gains tax on real estate sales and increased interest rates and down payment amounts for second homes in some markets last month as part of the government’s ongoing battle to rein in property prices. News of the tightened policies pulled down the Shanghai Composite Index by its largest one-day drop since 2011 and pushed up property sales, as buyers tried to complete transactions before the new measures took effect. China’s property market showed signs of cooling last year after the government tightened rules and raised rates for home buyers. Real estate prices have begun climbing again, however, with increases reported in 53 of the 70 cities surveyed by the statistics office in January.
The US Securities and Exchange Commission is cleared to continue pressuring international accounting firm Deloitte Touche Tohmatsu to turn over documents related to its audit of a Chinese firm, a US federal judge decided in March. Since 2010, accounting scandals have undermined confidence in overseas-listed Chinese firms as well as the accounting firms that audit them. The SEC has launched investigations into the Chinese companies, but Deloitte and other international accounting firms have resisted cooperating over concerns about violating disclosure laws in China. The SEC put its investigation on hold last year to negotiate with Chinese regulators over disclosure protocols. Those negotiations ended unsuccessfully in December, and the SEC is restarting its investigations.