China cuts taxes, focuses on infrastructure funding

China's central government has announced tax cuts for small enterprises and pledged to speed up funding for infrastructure projects to boost domestic demand, which could lift sentiment in the steel and its feedstocks markets by supporting construction and manufacturing.

The tax cuts have been necessitated by the downwards pressure on the economy and will increase employment and support the private sector, said prime minister Li Keqiang who chaired the cabinet meeting that made these decisions. Provinces have also been asked to reduce their value-added tax, resources tax and various other surcharges for small companies, which should relieve the tax burden of these enterprises by 200bn yuan ($29.44bn) a year.

The cabinet also set a deadline of September for paying out special bonds totalling Yn1.35 trillion to provinces for infrastructure projects. The special bonds programme was announced last year. Apart from these funds, special debt may be disbursed for speeding up completion of infrastructure projects and the start of new projects. A number of new projects in transportation, water conservation and environmental protection have been cleared, with the cabinet urging construction work to start soon. Several railway projects have been launched since December with completion schedules of 5-10 years.

Monetary and credit policies will be geared for providing debts for such projects and meeting project financing requirements. The cabinet said there will be no large-scale stimulus but fine tuning of policies to support stable demand, such as the reduction in banks' cash holding requirements that will boost liquidity in the economy.

China's infrastructure sector growth slowed to 3.7pc in 2018 from 19pc in 2017. The steel industry is hoping for a revival in infrastructure growth to offset an anticipated slower pace of real estate investment and new project growth this year. Steel mills have been restocking iron ore for the spring months, expecting demand to revive after the winter lull in construction ends.