China to cut taxes, boost lending to shore up economy

March 05, 2019 13:38
Chinese Premier Li Keqiang delivers a government work report at the opening session of the National People's Congress (NPC) in Beijing on Tuesday. Photo: Reuters

China unveiled plans Tuesday to cut taxes and fees, step up infrastructure investment, and boost lending to small firms in a bid to shore up the slowing economy.

The government is targeting economic growth of 6.0-6.5 percent this year, Premier Li Keqiang said in a work report delivered to the opening session of the National People's Congress, Reuters reports.

That compares to the 2018 gross domestic product growth of 6.6 percent, which was the weakest pace since 1990. 

Speaking in Beijing’s Great Hall of the People, Li sought to assure the country the leadership would keep the world’s second-largest economy on a safe footing as risks increase.

To help lift the economy, fiscal policy will become “more forceful”, with the government penciling in cuts of nearly 2 trillion yuan (US$298.3 billion) in taxes and fees for companies.

The tax cuts are more aggressive than the 1.3 trillion yuan delivered in 2018 and include reductions aimed at supporting the manufacturing, transport and construction sectors, Reuters noted.

China will closely monitor employment at exporting companies heavily exposed to the US market and cut the value-added tax (VAT) for the manufacturing sector to 13 percent from 16 percent, Li said.

VAT for the transport and construction sectors will be cut to 9 percent from 10 percent.

The government aims to create more than 11 million new urban jobs this year and keep the urban unemployment rate within 4.5 percent, in line with its 2018 goals. At the same time, it will cut the social security fees paid by companies.

In a push to ramp up infrastructure investment, China’s finance ministry has raised the special bond issuance quota for local governments to 2.15 trillion yuan from 1.35 trillion yuan last year.

The lower tax revenue and higher government spending mean Beijing has increased its budget deficit target to 2.8 percent of GDP from last year’s 2.6 percent.

The government has set a consumer inflation target of around 3 percent despite a recent softening in price rises to less than 2 percent, which gives Beijing some room to stimulate consumption.

Li said on Tuesday that monetary policy would be “neither too tight nor too loose” and that the government will not resort to a flood of liquidity.

Growth targets for M2 money supply, which includes cash in circulation and deposits, and total social financing this year would be in line with nominal GDP growth.

To support private and smaller firms, Beijing will step up targeted cuts in the reserve requirement ratio for smaller and medium-sized banks with an aim to boost lending to small companies by large banks by more than 30 percent, Li said.

Addressing one of the biggest challenges China’s economy faces, the government’s work report to parliament said Beijing will continue to promote Sino-US trade negotiations and that it is committed to safeguarding economic globalization and free trade.

Separately, China’s top banking regulator said on Tuesday that Beijing could “absolutely” reach an agreement with the United States on opening up its financial sector.

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