Tax, fee cuts to shore up economy
Annual Government Work Report sets 2019 GDP growth target of 6-6.5 percent
China lowered its annual GDP growth target for this year and planned to take a series of measures, such as reductions of taxes and fees, to shore up the economy, Premier Li Keqiang said in the Government Work Report he delivered to legislators and political advisers on Tuesday.
The country set the target of economic growth at between 6 and 6.5 percent in 2019, Li told participants in the opening of the second session of the 13th National People’s Congress. China’s year-on-year GDP growth came in at 6.6 percent in 2018.
Analysts said that by adopting a target range instead of a single figure, policymakers will have more room to maneuver and carry out economic restructuring to lay a solid foundation for future sustainable growth.
“The lowered growth target reflects both domestic and external uncertainties the Chinese economy faces,” said Cheng Shi, chief economist at ICBC International. “On the other hand, it is in line with China’s transition from high-rate growth to high-quality development,” he said.
The growth target range is more binding than a single figure, said Zhang Ming, an economist at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences. “By setting the floor of the target range at 6 percent, China is unlikely to tolerate a growth rate lower than 6 percent this year,” he said.
Li said that the country will face increasing uncertainties arising from slowing global economic growth and escalating protectionism and unilateralism as well as domestic economic easing.
He vowed to make the proactive fiscal policy more forceful and efficient and set a prudent monetary policy that is neither too tight nor too loose while prioritizing employment policy to keep the country’s economic growth “within a reasonable range”.
The country plans to create 11 million new jobs this year and keep the surveyed urban unemployment rate at around 5.5 percent. It also aims to cap the registered urban unemployment rate below 4.5 percent. The first rate is based on surveys, while the registered rate is from individuals’ reports to government agencies.
To keep the economy on track, Li said China plans to raise its fiscal deficit-to-GDP ratio to 2.8 percent this year from 2.6 percent in 2018. The local special-purpose debts will total 2.15 trillion yuan ($320.7 billion) this year, 800 billion yuan more than last year.
China’s “aggressive” tax cut plan for 2019 highlights the central government’s determination to promote high-end manufacturing and could motivate enterprises to increase investment despite the temporary slowdown in industrial profits, experts said on Tuesday.
The comments came after Premier Li Keqiang said in the Government Work Report on Tuesday at the opening of the second session of the 13th National People’s Congress that the nation aims to reduce the tax burden and social insurance contributions of enterprises by nearly 2 trillion yuan ($298.4 billion) this year.
Fan Yong, a professor at Central University of Finance and Economics, said the tax reduction goal sends a clear signal that the government is doing its best to buoy the development of manufacturers.
According to Li’s report, China will deepen value-added tax reforms, reducing the current rate of 16 percent in manufacturing and other industries to 13 percent, and lower the rate in the transportaxes tation, construction and other industries from
10 percent to 9 percent.
“A 3 percentage point tax cut for manufacturing companies is far more aggressive than most of us had expected, and will considerably reduce production costs. Such a strong and clear message from the government will also improve enterprises’ prospects for future growth and encourage them to invest more into the real economy.”
In his report, Li said that to better reduce tax burdens on companies, especially small and micro businesses, the government will also lower the share of urban workers’ basic elderly care insurance borne by employers.
The move comes after China cut about 1.3 trillion yuan in taxes and fees last year, including the valueadded tax, individual income taxes and corporate income taxes for small and medium-sized firms.
Cheng Shi, chief economist at ICBC International, said that bigger-than-expected steps to slash can help manufacturers move upward in the global industrial value chain and better deal with temporary difficulties.
According to the National Bureau of Statistics, industrial profit in December retreated by 1.9 percent from a year earlier, worsening from a 1.8 percent drop in November. Against such a backdrop, entrepreneurs said the aggressive tax reduction will ease their burden and stabilize their expectations for future operations.
Nan Cunhui, chairman and founder of Chint Group, China’s leading industrial electrical equipment maker, said the new round of tax-cutting policies are more inclusive, practical and targeted, which will help strengthen companies’ competitiveness.
Lei Jun, chairman and CEO of Chinese smartphone maker Xiaomi Corp, said slashing taxes will inject new vitality into companies, boosting their enthusiasm to innovate. And it’s likely to ignite a new creativity boom.