2013-07-26

Chinese stimulus will fail as social mood sinks

The State Council, effectively the nation's cabinet, approved a decision to offer China's small to medium businesses short-term tax breaks, speed up investment in railway infrastructure development and reduce exports red tape.

It is also likely the yuan will not be allowed to appreciate further against the US dollar, after a surge of nearly 20 per cent in the past year.

The tax changes, in which sales and value added tax will be waived from August 1, will apply to small businesses with less than 20,000 yuan ($3560) in sales a month. The State Council estimates more than six million small businesses will benefit.
Short-term tax cuts do not boost the economy. Individuals save them and it doesn't lead to hiring. These firms are basically individual businesses, as their monthly sales is equivalent to an upper middle class income in Beijing. These proprietors will save the money because they fear what is coming down the road. That's not to say lower taxes are bad—these firms will definitely be in a better position than they would without the tax break, but it will not lead to a meaningful change in aggregate behavior. See: China cuts tax, red tape as part of stimulus package for more info on the package.

Besides being an ineffective policy, social mood in China is taking a turn for the worse. The stock market is headed lower again and the newspapers are filling up with stabbings and murders.

Beijing Bans Selling Knives In Attempt To Curb Stabbings After Two Fatal Attacks
A spate of stabbings over the past week has prompted Beijing officials to introduce the ban in hopes of curbing other random attacks. Last week, a mentally ill man from Shandong province stabbed and killed two bystanders in front of a mall in the capital; one of them was an American citizen. Just five days later, a man by the name Wang killed a woman and seriously injured a two-year-old child as well as two other people. According to the Beijing Times, Wang had purchased his knife from the shopping center Carrefour, the location of the attack. Hed had spent five months at a Beijing mental hospital undergoing treatment for an undisclosed illness.

Unfortunately, China’s stabbing cases have become increasingly common.
The mall where the stabbing occurred is one of the most popular in Beijing.

Killing Puts Focus on Concerns Over China’s One-Child Policy
A man with a knife killed two government officials at a family planning bureau and injured four other people, the Chinese state news media reported on Wednesday, in an episode that drew wide attention in China because of continuing controversy over the country’s one-child policy.

From a social mood perspective, it is enough that the media is focusing attention on negative news items, particularly in China where the media is tightly controlled. Recently, the government told media outlets to play up the positive aspects of the economy and not to use the term "cash crunch" when discussing financial sector problems.

And then there's this story out today, which I suspect will soon become an international story: Beijing man kills two-year-old girl following dispute over parking
Han had been sitting in the front passenger seat of a white sedan driven by a male companion. They intended to park the car near a bus stop where the woman had stopped to check on her daughter, said the report. Han gestured for her to move, but the woman refused. Enraged, Han got out of his car and physically attacked the woman, said a witness and nearby business owner, surnamed Zhou.

“He then took the baby from its stroller and smashed it to the ground with great force,” Zhou said.

A man, who had been driving the car Han had been seen in, then got out and attacked the woman, Zhou added.

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