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State Reveals 1st Steps to Lift Economy

Data Analysis 08:34:50AM Dec 11, 2009 Source:SMM

BEIJING, Dec. 11 -- The State Council, the nation's top administrative authority, said the country will push to boost consumer spending in line with a strategy laid out at the recent Central Economic Work Conference.

The top cabinet will also raise the cost of second-hand house transactions in a move that analysts said is aimed at curbing speculative housing deals that have pushed up prices and created a lot of headaches among buyers.

Another key move was an increase to the purchase tax on small cars to 7.5 percent, from the current 5-percent level, effective until the end of next year.

At the end of last year, when the Chinese economy was mired in the global recession, China decided to exempt sales taxes on houses if they had been held for two years or more. Previously, the limit was five years.

Now the government has decided to resume the five-year sales tax exemption to curb speculative deals, said Dong Yuping, economist with the Chinese Academy of Social Sciences' Institute of Finance and Banking. The move can cut the cost of house transfers, ultimately benefiting the housing market.

"It is not aimed at dampening the whole sector," he said.

The Central Economic Work Conference, which concluded on Monday, said that the government encourages people to buy houses for their own use and increase the supply of ordinary and low-cost houses.

Speculation is a major factor behind soaring house prices, Dong said, adding that the move was expected and should have been carried out earlier.

By October, housing prices in China's 70 big and medium-sized cities had been on the rise for eight consecutive months compared to monthly prices from 2007. Many people, especially the young, have complained that houses have become unaffordable.

"The State Council meeting's decision will weaken the momentum of further price rises, although I'm not sure whether it will push down prices," Dong said.

The new vehicle tax policy, which applies to cars with an engine size of 1.6 liters or less, is a sign that the government may want to reduce subsidies for the rich who can afford cars due to the wide income gap between people in cities and the countryside, said Dong.

It is in line with the Central Economic Work Conference platform to improve the country's distribution of income, he said.

The new tax rate is still lower than the original 10 percent purchase tax, which was cut last year to encourage people to buy cars. Analysts said the latest change may slow white-hot car sales in China, the world's largest market. Sales of cars in the nation jumped 98 percent in November from a year earlier.

The cabinet meeting said it will also enhance the "cash for clunkers" plan, which was initiated last year to help boost spending.

The subsidy cap will be raised to 18,000 yuan ($2,640) from 5,000 yuan ($730) per car.

It will also continue to subsidize individual purchases of electric household appliances and agricultural machines and provide financial assistance to the unemployed.

State Reveals 1st Steps to Lift Economy

Data Analysis 08:34:50AM Dec 11, 2009 Source:SMM

BEIJING, Dec. 11 -- The State Council, the nation's top administrative authority, said the country will push to boost consumer spending in line with a strategy laid out at the recent Central Economic Work Conference.

The top cabinet will also raise the cost of second-hand house transactions in a move that analysts said is aimed at curbing speculative housing deals that have pushed up prices and created a lot of headaches among buyers.

Another key move was an increase to the purchase tax on small cars to 7.5 percent, from the current 5-percent level, effective until the end of next year.

At the end of last year, when the Chinese economy was mired in the global recession, China decided to exempt sales taxes on houses if they had been held for two years or more. Previously, the limit was five years.

Now the government has decided to resume the five-year sales tax exemption to curb speculative deals, said Dong Yuping, economist with the Chinese Academy of Social Sciences' Institute of Finance and Banking. The move can cut the cost of house transfers, ultimately benefiting the housing market.

"It is not aimed at dampening the whole sector," he said.

The Central Economic Work Conference, which concluded on Monday, said that the government encourages people to buy houses for their own use and increase the supply of ordinary and low-cost houses.

Speculation is a major factor behind soaring house prices, Dong said, adding that the move was expected and should have been carried out earlier.

By October, housing prices in China's 70 big and medium-sized cities had been on the rise for eight consecutive months compared to monthly prices from 2007. Many people, especially the young, have complained that houses have become unaffordable.

"The State Council meeting's decision will weaken the momentum of further price rises, although I'm not sure whether it will push down prices," Dong said.

The new vehicle tax policy, which applies to cars with an engine size of 1.6 liters or less, is a sign that the government may want to reduce subsidies for the rich who can afford cars due to the wide income gap between people in cities and the countryside, said Dong.

It is in line with the Central Economic Work Conference platform to improve the country's distribution of income, he said.

The new tax rate is still lower than the original 10 percent purchase tax, which was cut last year to encourage people to buy cars. Analysts said the latest change may slow white-hot car sales in China, the world's largest market. Sales of cars in the nation jumped 98 percent in November from a year earlier.

The cabinet meeting said it will also enhance the "cash for clunkers" plan, which was initiated last year to help boost spending.

The subsidy cap will be raised to 18,000 yuan ($2,640) from 5,000 yuan ($730) per car.

It will also continue to subsidize individual purchases of electric household appliances and agricultural machines and provide financial assistance to the unemployed.