Over past few days the moods of the Chinese chemical industries have improved owing to strong indication from Beijing about the launch of new stimulus package. As per the industry experts, this stimulus package will not be anything like the giant 2008-09 stimulus package or that of July 2013. To ensure that the Chinese government meets the economic target this year, the country has bowed towards an old standby policy of using the government spending to enhance economic growth, rolling out a mini-package of stimulus measures on 2nd April, 2014.
This fresh stimulus package includes railway construction, investment on slum clearance and affordable housing for low-income earners and tax relief for struggling small businesses. According to the central government, the Chinese State Council on 2nd April, 2014 had released plans to sell USD 24 billion US of bonds this year to build railways in the less-developed central and western regions and has also plans fund USD 35 billion to rail financing.
However until end of 2016, for the chemical industry and the existing tax breaks for small businesses will be extended and the tax verge for small businesses will also be raised. In China most of the chemical buyers are by and large small and medium sized industries. Just as the growth appeared to be the losing steam, this stimulus package was announced and for this year the country had also set a target of economic growth of about 7.5% which is less than 7.7% recorded last year and will lower the levels of recent years.
This economic growth has been targeted as to what the Chinese government perceives as sustainable areas of economic growth and consequently this involves no new money for oversupplied industries such as steel and aluminum. However, the economic data in the first quarter of 2014 was unsatisfactory and market players are expecting economic growth in the period to be lower than the full-year target level.
According to the economist, it is palpable that the leaders feel the need to stabilise growth and on the whole the 7.5% growth target means that the government still cares a lot about economic growth.
The mini-package of stimulus measures which was unveiled on 2nd April was similar to the tools which Beijing used last year when growth seemed to be flagging and it recommended that the government leaders were not taking chances. According to the State Council, the external and internal economic conditions remain complicated.
As stated by Premier Li Keqiang at the annual session of parliament in the month of March that the government needs to achieve its economic objectives for the year and in addition to hit the growth target, those objectives also integrated the creation of 10 million new jobs as well as keeping urban unemployment below 4.6%.
Hence, now that all the froth is being taken out of consumption the chore for the solvent companies relics to work out what the demand growth will be in 2014. Moreover, due to augmented growth opportunities in the northern and western provinces the chemical companies will have to look hard at their spread of resources across China.
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