The following information has become available since the preparation of the staff report. This does not alter the thrust of the staff appraisal.
1. Inflation. Consumer prices rose in June largely owing to higher food prices, in particular pork. The June outturn is in line with staff forecasts. However, if this strong momentum in pork prices is sustained, inflation could end the year modestly above staff forecasts.
2. Trade. The trade surplus rebounded in June to a seven-month high (US$22 billion). Both exports and imports were below staff’s June forecast although the trade surplus was modestly higher.
3. Monetary Policy. The People’s Bank of China increased loan and deposit rates by 25 basis points effective July 7, the third such increase this year.
4. Tax Reform. In an effort to raise household income, the government increased the personal income tax threshold to RMB 3,500 (up from RMB 2,000) effective September 1. The tax rate for those with incomes between RMB 3,500 to RMB 4,500 will decline to 3 percent (compared with 5 percent previously). This new threshold will reduce the number of households paying income tax by 60 million (to 24 million).
5. Local Government Debt. The National Audit Office published data showing at end- 2010 local government debts were RMB 10.7 trillion (or 27 percent of 2010 GDP). Around one-half of these debts were incurred by local government financing vehicles (LGFVs) and used to finance activities in the construction and transportation sectors and acquire land.
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