Home Russia & China China China cuts taxes, sees ‘tough struggle’ as growth slows

China cuts taxes, sees ‘tough struggle’ as growth slows


AFP |

China’s premier warned Tuesday that the country faces a “tough struggle” as he unveiled tax cuts and other measures to prop up an economy expected to slow further this year. Premier Li Keqiang told the opening session of China’s annual National People’s Congress that the government is targeting growth of 6.0 to 6.5 percent this year for the world’s second-largest economy, lowering its range from 2018.

The slowdown and trade war have become major challenges for President Xi Jinping, one year after the NPC boosted his status as the country’s most powerful leader since Mao Zedong by abolishing term limits and etching his name into China’s constitution. Nearly 3,000 delegates from across the country gathered under smoggy skies and tight security for the two-week session, with legislation aimed at improving conditions for foreign investors topping the agenda.

China’s premier warned that the country faces a “tough struggle” as he unveiled tax cuts and other measures to prop up an economy expected to slow further this year.

“In pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges… that are greater in number and size,” Li said in his speech. “We must be fully prepared for a tough struggle,” he said.

The government had set a target of around 6.5 percent in 2018 and eventually recorded official growth of 6.6 percent — the slowest pace in nearly three decades. Three-quarters of provinces have already lowered their annual growth targets this year.

Read more: China’s economy grew at slowest pace in 28 years in 2018

“We have made a moderate adjustment to our projection on the basis of a thorough assessment of destabilising factors and uncertainties affecting the economic performance,” Li said. To combat slowing growth, policy-makers have said they will lower taxes, reduce fees, and streamline red tape.

China will cut company taxes and employer social insurance contributions paid on behalf of workers by nearly 2 trillion yuan ($298 billion), Li said. The value-added tax for manufacturers will be lowered to 13 percent from 16 percent and drop one percent for transportation and construction industries.

Nearly 3,000 delegates from across the country gathered under smoggy skies and tight security for the two-week session.

Beijing will also pick up spending, with China’s targeted fiscal deficit set to increase to 2.8 percent of GDP, from 2.6 percent last year. Fiscal policy will be “proactive”, while monetary policy will remain “prudent”, Li said, outlining cuts to the reserve ratios at medium and small banks to unleash more funds into the economy.

To combat problems facing small business, Beijing will raise the VAT threshold to 100,000 yuan ($15,000) in monthly sales, from 30,000 yuan ($4,500) and direct large state banks to lend 30 percent more to small firms this year. Beijing is determined to achieve above six percent growth for the next two years to “meet its promise” of doubling GDP for the decade ending 2020, said Lu Ting, an analyst at Nomura bank.

Read more: Is a slowdown in the Chinese Economy sufficient to end the…

Economic Difficulties

As the economy slows, the government has unveiled a military budget increase of 7.5 percent to 1.2 trillion yuan ($177.6 billion), lower than last year’s 8.1 percent hike. Recent economic data point to the difficulties China faces, with growth in the last three months of 2018 clocking in at 6.4 percent.

The value-added tax for manufacturers will be lowered to 13 percent from 16 percent and drop one percent for transportation and construction industries.

In January, an important barometer of prices in the country’s industrial sector eased further, nearing contraction territory and potentially denting corporate profits. China’s imports also fell at the start of the year. Manufacturing activity has shrunk for three straight months, recording its worst performance in three years in February.

But the country’s roller-coaster stock market has recently turned into a bright spot, hitting its highest point in more than eight months on Monday amid renewed optimism about a US trade deal.

Trade War

Relations with the United States deteriorated sharply last year after President Donald Trump hit roughly half of the Chinese imports with new tariffs in an attempt to force trade concessions. But Trump has voiced confidence that he could soon sign a deal with Xi.

We will “continue to promote China-US trade negotiations”, Li said, and will settle “trade disputes through discussions as equals.” Enforcement of any agreement with the US has emerged as a potential sticking point.

Read more: Xi vows to expand China economy as US trade war continues

“We faithfully honour our commitments,” Li said. Li said they will not jolt growth with large-scale stimulus like during the financial crisis, instead of laying out policies to improve the business environment.

The legislature will next week pass a new law regulating foreign investment and barring the forced transfer of technology by foreign firms to Chinese joint venture partners, in a move that could help ease US trade tensions. Beijing will “create a fair and impartial market environment where Chinese and foreign companies are treated as equals and engage in fair competition,” Li said.

© Agence France-Presse

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