Tanay Rastogi, the sixth generation in his family in the business of textiles owns multiple stores of high brand wedding clothes in the major markets of the capital, including Chandni Chowk, Karol Bagh, Rohini, Kamla Nagar and South Extension. Prior to the roll-out of the biggest tax reform, Tanay claims that he earned about a lakh in a day. But after the implementation of the Goods and Services Tax, the scenario has changed. He along with his salesmen sits idle at his store in Chandni Chowk with no customers around. “My business is dead, my sale is not even one per cent of what it was before GST,” he said. According to Rastogi while customers may be willing to pay GST in a shoe shop or restaurant, but when it comes to a Sari, they need discount.
Another wholesaler of Chandni Chowk, a third generation in the textiles’ business held sample bills in his hand, confused about the rates levied under GST. He confessed that he had no idea about the tax slabs, bills and the billing process yet.
Owner of another shop in the vicinity who sells readymade wedding clothes in Old Delhi seemed unperturbed due to GST. He explained that the wholesalers are facing some problems post-GST whereas the situation of retailers is comparatively better. “We are in a better state because we can afford a CA who can guide us in this situation. We know that 5 per cent GST is levied on garments below Rs. 1000 and 12 per cent on the ones above that; but it is not the case in terms of the unorganized sector or small artisans,” he said.
Then there is the matter of suppliers. Virtually 80 per cent of textile production is through micro and small sector namely artisans, who do not have the capacity to get in touch with a Chartered Accountant, traders at Chandni Chowk said.
“I being a learned person is not able to completely understand the whole process of GST, then how can we expect the unorganized sector to learn and start implementing it all of a sudden?” he asks. Rastogi said that the biggest drawback is the inter-state linking, due to which a small-scale artisan in one state will not be able to supply to the bigger states. And Rastogi is not alone. Hundreds of textile traders have similar arguments against GST. While Rastogi is now in touch with his CA for registration on the GST Network, several other fellow traders are still hopeful of some exemption.
But come what may, the populated streets of Chandni Chowk remain desolate. But one fact emerged: None of the retailers in Chandni Chowk had registered with the GST Network.
Market Resolution
Textile traders at Chandni Chowk are demanding a period of at least six months to switch over to GST so that the returns could be filed on a monthly basis. Some are hopeful of a rate revision to a flat 5 per cent in order to avoid confusion.
Unlike Surat in Gujarat, the collective conscience of the textile traders at Chandni Chowk is against going on strike. According to various traders and news reports, the textile industry is estimated to have suffered a loss of around Rs 40,000 crore due to the protest against GST since July 1 in the states of Gujarat, Tamil Nadu, Punjab, Uttar Pradesh, and Andhra Pradesh among others.
Source: Business World
SURAT: The anti-GST protesters in the country's largest man-made fabric (MMF) wholesale market in the city remained calm even as around 15 per cent of the textile shops opened up for business on Monday.
Despite Saturday's mob frenzy at Surat Textile Market (STM) on Ring Road, shop owners in many markets located on Ring Road, Salabatpura and Sahara Darwaja opened up their shops. At the STM market, Manbhari Prints, which faced the mob frenzy on Saturday, opened up on Monday. The mobs had disappeared and there was routine movement of traders and textile workers inside the market.
"If few traders show courage and open up their shops, rest of the traders will follow. Today, 15 per cent shops in all the markets have opened up. Tomorrow there will be 50 per cent and the business will be normal on the third day," said owner of Manbhari Prints Narendra Saboo, who also despatched his sari orders to other states on Monday.
The Ring Road, which houses most of the textile markets and remained the epicentre of the anti-GST protest during the last fortnight, wore a picture of normalcy. Those working in the shops were coming and going out of the markets as per their usual schedule, hanging out around the tea and paan shops, and ate at the restaurants and food stalls. The crowds that used to throng the few big markets, including Millennium, Raghukul, JJ air-conditioned market and at Salasar Gate were conspicuously missing.
Even the sloganeering against the government and local politicians had died down. "Shutting down the shops for an indefinite period is not the way out. You have to keep the dialogue going on with the government while ensuring your business is not harmed. Today, lakhs of poor textile workers have become jobless and important business season slipping away," said Dhirubhai Shah of Fairdeal Filaments.
Source: Times of INDIA
The Indian rupee on Tuesday strengthened against the US dollar, tracking gains in the Asian currencies markets.
The rupee opened and touched a high of 64.32 a dollar. At 9.15am, the rupee was trading at 64.32 a dollar, up 0.07% from its Monday’s close of 64.36.
The 10-year bond yield was at 6.456%, compared to its previous close of 6.464%. Bond yields and prices move in opposite directions.
The benchmark Sensex index fell 1% or 300 points to 31,784.20. So far this year, it has risen 19%.
So far this year, the rupee has gained 5.3%, while foreign investors bought $8.36 billion and $16.12 billion in local equity and debt markets, respectively.
Asian currencies were trading higher. Japanese yen was up 0.42%, South Korean won 0.23%, China offshore 0.13%, China renminbi 0.12%, Indonesian rupiah 0.1%, Thai baht 0.1%, Taiwan dollar 0.1% and Singapore dollar 0.09%. However, Philippines peso was down 0.22%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 94.768, down 0.38% from its previous close of 95.128.
Traders are cautious ahead of Thursday’s European Central Bank policy meeting and next week’s US Federal Reserve meeting.
SOURCE: Livemint
The introduction of the goods and services tax (GST) has reduced the travel time of goods-laden trucks plying across states. But, the reduction is more due to thinner traffic, as scared illegal transporters are staying home, than because of lesser red tape.
While a 15-20 per cent cut in travel time, claimed by some government officials, is not uniform across the country, and at best is limited to certain pockets, its durability could be put to the real test when the highways bounce back from the GST-induced lull.
Business Standard reporters travelled on two trucks on opposite directions from New Delhi to check out six inter-state borders en route. They also went to two of the busiest entry points to the national capital: Kalindi Kunj, where trucks from Uttar Pradesh arrive; and the Badarpur border with Haryana.
Two roads
The distance between Delhi and Chandigarh is 250 km; one crosses two borders: Delhi-Haryana and HaryanaPunjab (Lalru). The overnight journey was completed in six hours. On the other route, to Mumbai, the BS team crossed three borders: Delhi-Haryana (Rajokhri), Haryana-Rajasthan (Shahjahanpur), and Rajasthan-Gujarat (Shamlaji). It took 36 hours to cover 793 km between Delhi and Shamlaji, suggesting not much has changed.
Check posts are still there in Punjab and Gujarat; there were none at the others before the GST roll-out anyway. Truckers, as well as ancillary service providers such as dhaba owners and shopkeepers, said the GST had only managed to slow down business. There are other factors as well that influence travel time, such as driver preferences, and introduction of digital payments at toll plazas. Sales tax inspections are also minimal, and there is widespread lack of understanding of the new tax regime.
Illegal business off roads
“Two things have changed in the past 15 days: Illegal transport of goods has completely stopped and there is hardly any queue at the border check points,” said Mohammed, a truck driver who drove us to Chandigarh.
Another reason for the fall in traffic was business persons were not transporting any goods except essentials, said a traffic manager at a transport company in Punjabi Bagh, West Delhi. “Most people are waiting and watching as they are not sure of the rules. Even chartered accounts are unable to provide proper advice.”
His claim was corroborated by two truck drivers on the Mumbai route. One of them, Raghu, said trucks were waiting in Mumbai for up to eight days as there were hardly any consignments to take back. Another driver, Nagender, said people were only sending rice and salt and other such goods, kept out of the GST ambit.
Truck rentals had fallen 10-15 per cent, said experts and transporters.
Jigyasu Wadhwa, owner of transport firm Okara Roadlines at Punjabi Bagh, said, “Detention time has gone up as there are hardly any bookings. This has hit freight rates.” “Roll-out of GST without e-way bills means it has been implemented only on paper,” said S P Singh, senior fellow, Indian Foundation of Transport Research and Training.
With the e-way bills system in place, authorities would have digital tools to check consignment with value of over ~50,000 on the spot. Singh said there were about 4.5 million trucks in the country. Considering older vehicles and smaller ones could take the number to six million. Of these only 1.3 million had all-India permits and another million bilateral or reciprocal permits allowing them to operate in two states.
“A major portion of transportation operated with illegality as part of business policy,” he said. Now these were off the road. Most of the remaining 4 million vehicles operate intrastate only. Singh said 80 per cent intrastate trade was on, as GST had no impact there, but 40 per cent interstate trade was missing from the highways. Choc-a-bloc entry points At Kalindi Kunj, where trucks from Uttar Pradesh arrive in New Delhi, B N Tiwari, in charge of the entry tolls, said traffic had fallen considerably. Javed, a driver coming in driving from Noida, seconded Tiwari and said of the 100 trucks of his company only 30 had been booked.
Despite the reduced traffic, entry — at Kalindi Kunj and the Bararpur border — took about 30-45 minutes.
The delay is caused by collection of different tolls — one imposed by the National Highways Authority of India, another by the Municipal Corporation of Delhi, and a green tax following a Supreme Court directive. At the Badarpur border, the highway and municipal tolls were collected at the plaza, while the green tax was collected by officials with handheld devices about 100 metres away. On the DelhiMumbai route there are two dozen toll plazas; trucks usually pay about ~8,000 per trip.
The company that owned the truck in which we travelled had pasted a “fastag”, which allows cashless toll payment, on the windscreen of the vehicle.
We crossed 15 toll plazas on this route; only two had automated systems to read the “fastag”. Some had dedicated lanes for trucks with such tags, but other vehicles also often ventured into these, holding up traffic. At places where there were two dedicated lanes for “fastag” trucks, there would be only one handheld device to check the trucks.
At Paduna, between Udaipur and Kherwara, toll plaza officials could not read the tag. Nagender, our driver, had to shell out ~405. Check posts remain Check posts for sales tax were still working at some places, eschewing the reason for rolling out the GST.
Dhiraj Gupta, owner of Chamba Manali Transport, said the sales tax check post on the Delhi-Punjab highway at Lalru, near Ambala, was still functional. “The whole purpose of the GST is defeated if these barriers are not removed.” He added that such posts were still operational in Himachal Pradesh as well. “The state government is still insisting that truck drivers fill up Form 26A. Though now there is no charge, the hassle of filling up separate form remains.”
At Lalru, state government employees said they were stamping all the bills so that businessmen didn’t face any trouble while filing return on the GST Network. “Drivers don’t face any problems,” insisted Raman Singh, one of the officials manning the check post.
He added this would continue till September when the GST software and other infrastructure were operational. In Gujarat, too, new systems had not replaced old ones completely. Baheti (transit passes), mandatory under Gujarat value added tax, persist even now. Every dhaba leading to a border has a baheti counter.
Krishna Pal Singh runs such a counter with a laptop and printer near Parsad, about 50 km from the Gujarat-Rajasthan border. He said, “The new system is not too different. Earlier, we had to enter a CST TIN number; now we have to enter a GST number.” Some truckers were taking the pass, others were not, but the business which used to earn Singh ~1,000 a day was on its last leg. At Shamlaji, the Gujarat government checkpost was still functional. Cleaners from trucks would run ahead of their vehicles to get their bahetis stamped.
A bespectacled tax official said, “For all taxable items, the transit pass would continue.” Showing Form 405 needed to make bahetis, he explained the older form quoted the Gujarat VAT Act, while the newer ones had relevant sections of Gujarat State GST Act. “New tax; new paper,” he added.
Source: Business Standard
The infrastructure sector is the backbone of the Indian economy. The government has been making efforts to boost the sector through various schemes and incentives.
According to the government, total infrastructure spending is expected to be about 10% of GDP (gross domestic product) during the 12th Five-Year Plan (2012–17), up from 7.6% during the previous Plan. A total of 6,604km has been constructed out of the 15,000km target set for national highways in 2016-17, says the ministry of road transport and highways. The Airports Authority of India plans to develop city-side infrastructure at 13 regional airports, with help from private entities for building of hotels, car parks and other facilities. Significant allocations have been made to power, urban development and inland waterways sectors. The above initiatives show the firm commitment of the government to infrastructure.
Given this, the recent introduction of the goods and services tax (GST) could have significant impact in terms of spending on infrastructure.
In the pre-GST era, there was dichotomy in the applicable indirect tax regime relevant to infrastructure. While Central laws provided exemptions and concessions, state VAT (value-added tax) and entry tax laws were applicable to goods procured. In addition, the cascading effect of Central and state indirect taxes was a concern, due to a high base for levy of respective taxes and a restrictive credit mechanism. There was also litigation at the Central and state levels on classification of contracts, valuation, jurisdiction of state on inter-state works contracts and other issues.
GST being a concurrent tax on supply of goods and services is expected to bring in predictability for infrastructure projects. There are some changes that would have an impact on indirect taxation—taxability of works contracts being one. As works contracts are limited to only immovable properties, turnkey contracts which do not result in immovable property would now be treated as composite supplies. Further, valuation of goods and services in works contracts, which has typically sparked differences between Central and state indirect tax authorities, would now be put to rest with the legislation laying down unambiguously that works contracts would be regarded as supply of services. Other contracts which do not result in immovable property could be regarded as composite supplies, and depending on the principal supply, tax liability would arise either as a supply of goods or services.
While there is apprehension that a flat GST rate of 18% would lead to increased incidence on infrastructure projects, availability of input tax credits would neutralize such concerns. Thus, contractors and suppliers could look forward to a simpler and efficient tax regime.
For project owners, the new legislation may not lead to a conducive future. Credit restrictions on works contracts resulting in an immovable property coupled with increase in GST rates could increase cost outlay. Already, exemptions and concessions to infrastructure have been completely withdrawn. This could also lead to increased working capital requirements. Project cost could rise due to increased burden of indirect taxes.
Power is an important component of infrastructure. Electricity being outside the purview of GST, power generation companies would continue to have indirect taxes as a significant cost factor. Further, an increase in rate of services and withdrawal of exemptions and concessions for power projects is expected to have an impact on power companies.
Similarly, withdrawal of exemptions for road, water supply and sewerage projects sponsored by government and local authorities is expected to increase government spend. However, availability of higher pool of input tax credit in the hands of the contractors could help neutralize such increases. So introduction of GST seems to be a mixed bag for the infra sector—predictability and efficiency being the key advantages, while non-inclusion of sub-sectors, higher rate and certain restrictions are negatives.
On direct taxes, the government intends to bring down the corporate tax rate in a phased manner and correspondingly phase out profit-linked tax incentives.
While most such tax incentives are phased out from 1 April, the industry is yet to witness an impactful reduction. So far, the reduction in the base corporate tax rate from 30% to 25% is for companies with revenue up to Rs50 crore in financial year 2015-16. Infrastructure requires considerable investment and it is likely that it may not be the beneficiary of reduced corporate tax rate. Also, as gestation is high, it is unlikely to generate enough profit in the initial years to absorb compulsory depreciation charge under the Income Tax Act. Consequently, there could be incidence of minimum alternate tax (MAT) of approximately 18.5%, on the book profit.
Industry has been demanding withdrawal of MAT, and the finance minister had acknowledged this demand, although there has been no relief so far. The only respite has been to allow set-off of MAT paid against future tax liability for 15 years as against 10 years. The intent and willingness of the current government to go the extra mile for overall growth, has been well received. With time, industry expects more clarity in GST and a reduction in corporate tax rate to make up for withdrawal of direct tax incentives. These measures will propel much-needed growth for India’s infrastructure.
SOURCE: Livemint
Ignoring the Supreme Court’s prod to provide a fresh window to those who could not exchange scrapped Rs 500 and Rs 1,000 notes by last December 30 because of genuine difficulty, the Centre on Monday firmly said no new opportunity would be given for the exchange of the outlawed currency as it could be misused.
“The very object of demonetisation and elimination of black money will be defeated if awindow is opened for further period as the persons in possession of scrapped currency notes would have had sufficient time to plan the reasons and excuses for not depositing them by the December 30 deadline,” the finance ministry told the court through an affidavit.
“Going by the extent and enormity of malpractices observed during the post-demonetisation period, it is apparent that if a fresh opportunity is offered for exchange, it would lead to rampant illegal trading of these notes (they being traded at a discount),” the Centre added.
On July 4, the SC had told the Centre, “It’s our duty to caution you. If a person is alone and suffered grave illness during the November 9 to December 30 period, it becomes impossible for him to deposit his old notes. If he can prove it is his hardearned money, he would need the window you had promised.” T he H1N1 influenza and leptospirosis have claimed 7 lives in the city in the first two weeks of July, while hundreds have been hit by dengue and gastroenteritis. Cholera too has made a comeback. H1N1 has claimed five lives, including a four-year-old. Four of the deaths were caused due to delay in treatment. While last year only 3 H1N1 cases were reported, in 2015 the death toll was 52.
We ourselves (the bench) have rejected many petitions as we found their reasons not genuine. But, those with genuine difficulty must have a chance to convince the authorities. If you do not agree to open a window, then we will say it is open for such persons who can prove genuineness of their money and difficulty to deposit within December 30 deadline to seek relief from the government. He should have an opportunity to explain and replace the old money. You cannot turn his genuine money into trash,” the SC had added on July 4.
But, the Centre remained unmoved. It said if a fresh window was opened, “any number of benami transactions and user proxies for the purpose of producing and depositing scrapped currency notes would then arise which the departments would have great difficulty in deciding any genuine case from the numerous bogus cases”.
It said in January 1978, He (a person with genuine difficulty) should have an opportunity to explain and replace the old money. You can’t turn his genuine money into trash If you do not agree to open a window, we will say it is open for such persons to seek relief from the government
—SC on July 4
the government had kept a six-day demonetisation window for citizens to deposit scrapped notes in their possession despite low penetration of electronic media and absence of social media in disseminating information. “Seen in conjunction with the spread of media, present window of 51 days (from November 9 to December 30) was extremely reasonable,” it said.
Referring to the SC’s poser for a one-time opportunity for those who missed the December 30 deadline, A 51-day window was extremely reasonable. (By now) people have had sufficient time to plan reasons & excuses for not depositing old notes Benami transactions and user proxies will arise... (Depts) will have difficulty in deciding a genuine case from a bogus one
—Govt on July 17
the finance ministry said, “After extensive deliberations, it was decided that any relaxation from what has already been allowed regarding deposit of scrapped bank notes based on the notifications issued as a result of the ordinance are not warranted.”
It said the ordinance was since replaced with the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which was notified on February 28 and none of the 10 petitioners had challenged it.
Source: Times of India
NEW DELHI: The government is preparing a national plan for manufacturing clusters with an aim to bring about convergence in development of industrial areas by central and state governments, Parliament was informed today.
Commerce and Industry Minister Nirmala Sitharaman said that inputs from central ministries and departments and states have been taken for development of an industrial information system. She said action for constitution of a committee to evolve cluster framework has been taken.
"Yes. Government is preparing a National Plan for Manufacturing Clusters. The Plan aims to bring about convergence in development of industrial areas by the central and state governments so as to bring about optimal utilisation of resources," she said in a written reply to the Lok Sabha. Replying to a separate question on ease of doing business, she said the Department of Industrial Policy and Promotion (DIPP) will carry out a comprehensive business-to- government (B2G) feedback exercise this year.
Under this exercise, feedback will be taken from businesses on the quality of implementation of the reforms claimed by the states and the UTs. "For each state/UT, the scores will be aggregated over all the surveys conducted to yield an overall score for the State/UT. The feedback scores will be used to generate a ranking of States/UTs in terms of reform implementation," she added.
India ranks 130th in the World Bank's annual Doing Business Report of 2017. The government's target is to improve the business regulatory environment of India and its ranking. The DIPP has urged the ministries and departments to analyse the World Bank's latest Doing Business report. "Nodal departments/ministries have been identified for each of the 10 indicators of the report. The departments in coordination with Government of NCT of Delhi and Government of Maharashtra are responsible for reducing procedures, time and cost across each indicator," she said.
Ministries have also been asked to carry out regular engagements with stakeholders and conduct workshops with the users and stakeholders to familiarise them with the reforms, take their feedback on a regular basis and take corrective action where required.
Source: Economic Times
The US has not made any 'comprehensive changes' in its work visa programmes, including H-1B visas, so far despite India taking up the issue with the American government from time to time, Parliament was informed today.
Commerce and Industry Minister Nirmala Sitharaman said that the problems being faced by the IT industry have been raised by India with the US government from time to time at various levels.
India has also taken up the matter on US visa fee hike in the dispute settlement body of the World Trade Organization (WTO), she said in a written reply to the Lok Sabha.
"The US has not made any comprehensive changes to the work visa programmes including H-1B visas so far," she said.
The minister also said India has made continuous efforts to raise concerns pertaining to IT and ITeS industries in different bilateral meetings including in the Trade Policy Forum.
Indian IT industry has raised concerns over the proposed changes in the US visa regime. Any changes may result in higher operational costs and shortage of skilled workers for the USD 110 billion Indian outsourcing industry.
Indian IT sector, which contributes 9.3 per cent to the country's GDP, is one of the largest private sector employers at 3.7 million people.
The US contributes nearly 62 per cent of the exports, while EU is the second largest market for Indian IT services exporters contributing approximately 28 per cent.
SOURCE: PTI
The textile sector has kept its dominance in terms of number of securities and contribution in daily turnover value on Dhaka Stock Exchange (DSE).
The sector's contribution in turnover value became more visible following investors' increased participation in share trading after the government proposed to reduce corporate tax on textile sector.
After the announcement of national budget for the fiscal year 2017-18, the textile sector grabbed the highest amount of daily turnover in most of the trading sessions observed on the premier bourse DSE.
A significant number of companies also went public from the textile sector during January, 2014 to March, 2017.
As a result, the textile sector now comprises the highest number of listed securities. Presently, the sector comprises 48 listed securities, while the insurance sector comprises 47 listed securities.
According to DSE information, the textile sector topped the daily turnover chart grabbing highest amount in many sessions following investors' increased participation. Previously, the engineering and banking sector dominated the turnover chart.
The DSE featured daily turnover of above Tk 10 billion from July 3 to July 17 mainly riding on the textile sector. On July 2, the textile sector topped the turnover chart capturing 17 per cent of the market turnover.
The sector captured 17 per cent of market turnover on July 3, 23 per cent on July 4, 17.80 per cent on July 5, 16.40 per cent on July 6, 22 per cent on July 9, 17 per cent on July 10, 22 per cent on July 11, 22 per cent on July 12, 18 per cent on July 13, 18.90 per cent on July 16 and 15.10 per cent on July 17.
Asked, Md.Moniruzzaman, managing director of IDLC Investments, said the announcement of reducing corporate tax may be a reason behind investors' increased participation in textile sector,
"Secondly, the companies having low paid-up capital also observes rally in the market. It may be another reason for the dominance of textile sector in turnover chart," Moniruzzaman said.
A total of 42 went public since January, 2014 to March, 2017 and of these companies 18 came from textile sector.
Of five IPOs, approved in 2017, three are from textile sector. The companies are: Nurani Dyeing & Sweater, Shepherd Industries and Pacific Denims.
The regulator approved six IPOs in 2016. Of six companies, three came from textile sector. The companies are Yeakin Polymer, Evince Textile, Dragon Sweater & Spinning.
Of 14 IPOs, approved in 2015, six came from textile sector. The companies are C & A Textiles, Shasha Denims, Zaheen Spinning, Tosrifa Industries, Simtex Industries and Regent Textile Mills.
Of 17 IPOs, approved in 2014, six companies also came from textile sector. The are Mozaffar Hossain Spinning Mills, Matin Spinning Mills, Hwa Well Textiles (BD), Tung Hai Knitting & Dyeing, Far East Knitting & Dyeing Industries and Hamid Fabrics.
Mohammad Saifur Rahman, an executive director of the securities regulator, said a significant number of IPO proposals come from the textile sector as the sector is largest one in terms of number of companies.
"The regulator does not consider the sector while approving IPO proposals. The sector-wise IPOs’ assessment vary from time to time," Rahman said.
China’s economy expanded faster-than-expected in the second quarter, setting the country on course to comfortably meet its 2017 growth target and giving policymakers room to tackle big economic challenges ahead of key leadership changes later this year. The boost to growth was in part driven by firmer exports and production, in particular steel, which could heighten trade tensions as the United States and China begin economic talks this week. U.S. President Donald Trump has made the U.S. trade deficit with China a top agenda item in bilateral talks and has also flagged the steel trade as a point of contention. China’s gross domestic product rose 6.9 percent in the second quarter from a year earlier, the same rate as the first quarter, the National Bureau of Statistics said on Monday. That was higher than analysts’ expectations of a 6.8 percent expansion. Economic data from the second quarter has prompted a number of analysts to upgrade their GDP forecasts for China for 2017, although some moderation in growth is expected later this year as policymakers’ efforts to rein in property and debt risks weigh on activity. “In general, we expect GDPgrowth to remain robust in the second half but slower than the first half, due to the high base,” Citi economists said in a research note. “Looking ahead, uncertainty remains on investment and trade.” The bank has raised its 2017 annual GDP projection to 6.8 percent on-year from 6.6 percent previously. The robust numbers kept world shares near a record high and briefly helped China’s major stock indexes recoup earlier losses. The second quarter numbers put the economy on a strong footing to meet China’s growth target of around 6.5 percent in 2017, which would give policymakers room to defuse financial risks. While growth in the high-flying property sector has cooled this year, a rebound in exports after several years of decline has helped prevent any broader slowdown in China’s economy. Retail spending and factory output were also bright spots in the first half. Retail sales growth picked up to 10.8 percent in the second quarter from 10.0 percent in the first quarter, a Reuters calculation based on official data showed. Factory output also picked up in the second quarter, though the 6.9 percent growth for the first half was only a slight pickup from recent quarters.
SOURCE: Euronews
China’s economy grew faster than expected in the second quarter, putting the nation on track to meet its growth target this year and giving backing to officials in their campaign to corral oncoming financial risk.
Data showing that the world’s second-largest economy expanded 6.9 percent in the second quarter, matching the pace from the first three months, was released hours after the Communist Party’s People’s Daily newspaper warned of potential "gray rhinos" -- highly probable, high-impact threats that people should see coming, but often don’t.
In China’s case it’s the relentless buildup of risks caused by the debt-fueled investment that’s contributing to growth, a development tackled by a major meeting of top leaders in Beijing at the weekend. Until now, regulators have homed in on financial-sector excesses; that probe is now widening to debt in the broader economy, a shift that prompted a sell-off in domestic stocks.
China is grappling with how to ensure annual growth of at least 6.5 percent this year while reining in financial sector risks ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress. A regulatory crackdown pushed up money market rates and helped damp down speculative lending while at the weekend President Xi Jinping warned regulators that failing to spot and dispose of risks in a timely manner would amount to a "dereliction of duty."
"The gray rhinos are containable," said Liu Ligang, chief China economist for Citigroup Inc. in Hong Kong. But the economy is "still relying quite a lot on investment and credit and overall financial leverage is still building up. There’s no doubt that China’s debt overhang is still a serious challenge."
While the economy steams along, the government is setting a wary tone: The front page commentary in the People’s Daily, said China should not only be alert to "black swan" risks that catch people off guard but also more obvious threats. It cited a term popularized by author Michele Wucker’s book "The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore."
With the economy still on a slowing-growth trend, China should "strictly prevent risks from liquidity, credit, shadow banking and abnormal capital market fluctuations, as well as insurance market and property bubbles," the commentary said. The new focus on "deleveraging in the economy" suggests that local-government and state-owned enterprise debt is now very much in the spotlight.
China’s strong momentum has fueled global economic expansion and boosted sentiment in international markets. The nation’s solid growth reinforces recoveries for commodity exporters and keeps 2017’s pickup in global growth on track, said William Adams, senior international economist at PNC Financial Services Group in Pittsburgh.
"The Fed’s commitment to a gradual pace of interest rate hikes is maintaining supportive monetary conditions for emerging-market growth," said Adams, who previously worked for the Conference Board in Beijing. "And with little sign of global inflationary pressure from either labor markets or commodity prices, this global expansion has room to run."
Synchronized growth in most developed markets has meant exports have helped keep the expansion on track, and the effects of property market cooling are yet to kick in. The statistics bureau said the result "provides a solid basis" for meeting the full-year growth target.
"It’s a cyclical recovery story on strong exports and real estate," said Junheng Li, the founder of JL Warren Capital LLC, a China-focused research firm in New York. "Both are the same old growth drivers. Very little supply-side reform and restructuring have been done in the first half."
The strong data suggest across-the-board robustness in the industrial sector in June, said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. China can aim for faster deleveraging in the real economy in the second half and the leverage ratio will come down significantly this year with nominal GDP growing and credit growth slowing, he said
"It’s a good time for corporates to cut excess leverage, especially for state-owned enterprises," Zhu said. "We’re now in an upward trend of the economy which makes it less painful and much easier to push ahead."
Zhu raised his 2017 full-year growth estimate to 6.8 percent from 6.7 percent after the report, as did economists at Nomura Holdings Inc.. Societe Generale SA boosted its estimate to 6.7 percent from 6.6 percent while Australia & New Zealand Banking Group Ltd. lifted its projection to 6.7 percent from 6.5 percent.
Robust nominal GDP growth -- the expansion pace not adjusted by prices -- rose 11.1 percent. The GDP deflator, a gauge of economy-wide inflation, came in at 4.5 percentage points -- the difference between the nominal and real growth rate of output. That fast expansion backed by price pressure would help boost corporate profits and government revenue, and help service or cut their debts.
China Daily, the official English-language newspaper, said in a commentary Monday that fending off risks is one of the country’s top priorities, with corporate debt running high, the property market being overheated and excess capacity in some sectors lingering.
"Only through guarding against financial risks can a sound and stable financial sector better fulfill its duty and purpose of serving the real economy," it said.
Source: Bloomberg
