US nears car rescue; China, Europe mull stimulus

(Agencies/chinadaily.com.cn)
Updated: 2008-12-09 07:09

Progress toward an auto bailout and hopes for massive public works injected life into US equity markets on Monday despite distress signals including new corporate job cuts and a pillar of American media filing for bankruptcy.

Chinese and European leaders plotted their next steps as investors looked to governments to lead major economies out of recession because central banks could start running out of room to cut interest rates further.

A woman walks past a board displaying the Hang Seng Index chart in Hong Kong, December 8, 2008. Hong Kong share prices closed 8.7 percent higher, lifted by hopes that Beijing would announce more market-boosting measures to boost its economy. The benchmark Hang Seng Index rose 1,199 points at 15,044. Stocks on the mainland and other Asian markets also rose. [Agencies]

China's Central Economic Work Conference

China's top policymakers gathered to map out economic policy for next year, with the government focusing on shoring up growth and jobs as export demand shrinks.

Related readings: Tax cuts for businesses in pipelineMeet to set tone for economic policy Policymakers ponder ways to spur consumption Help-poor policies on the anvil China eyes more property prop up Recession winds chill exporters

The annual Central Economic Work Conference started Monday in Beijing in a closed session likely to last three days to discuss ways to keep the country's annual growth at 8 percent or higher.

The Chinese government is "very likely" to initiate cuts in business tax to add impetus to the slowing economy. [Tax cuts for businesses in pipeline]

The authorities may soon cut business tax for enterprises by 1 percentage point from the current 5 percent, a source close to policymakers told China Daily, without mentioning a timeframe.

That would amount to 120 billion yuan ($17.5 billion) worth of tax cuts given annual business tax revenues of more than 600 billion yuan ($87.6 billion) last year.

Business tax - distinct from enterprise income tax and value added tax - is levied on enterprises and individuals that provide labor services, transfer intangible assets or sell immovable property in China.

Workers make shoes at a factory in Wenzhou, Zhejiang Province, December 7, 2008. Manufacturers and exporters in China have felt the pinch of falling overseas demands. [China Daily]

It was also reported earlier that policymakers would introduce more measures to spur consumption at the meeting.

"As demand for exports and the momentum for fixed-asset investments looks set to slow, China's authorities are expected to push forward measures to rebalance the sources of economic development in favor of consumption," Jing Ulrich, managing director and chairman of China equities at JPMorgan, said on Monday.

Policymakers may discuss raising the threshold of personal income tax from 2,000 yuan to 3,000 yuan a month, as the economic slowdown and a slump in property and stock markets have already hit income growth, forcing consumers to cut expenditures.

Meanwhile, some economists suggested that health and education services be expanded to low-income households and unemployment allowance be increased to help ease social pressure and increase consumption.

The Chinese government is also expected to increase social programs in the countryside, which could help boost rural consumption.

Auto Rescue Nears & Obama Infrastructure Plan

US President-elect Barack Obama provided some hope with a weekend pledge to create more than 2.5 million new jobs by 2011 and launch the largest investment in US infrastructure since the 1950s.

"Obama looks like he's going to be able to fast-track one of the largest infrastructure spending packages since the history of mankind," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Negotiators for outgoing President George W. Bush, who hands over power to Obama on January 20, and Congressional Democrats edged toward agreement on a $15 billion auto sector rescue plan after three days of talks.

US Rep. Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the remaining disagreements could be resolved in a few hours.

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