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China cuts taxes, sees ‘tough struggle’ as growth slows
BEIJING, March 6, 2019 (BSS/AFP) – China’s premier warned Tuesday that the
country faces a “tough struggle” as he unveiled tax cuts to prop up a
stuttering economy while increasing military spending to nearly $180 billion.
The slowdown and US trade war have become major challenges for President
Xi Jinping, a year after becoming the country’s most powerful leader since
Mao Zedong with the abolition of term limits and etching of his name into the
constitution.
Premier Li Keqiang told the opening session of China’s annual National
People’s Congress that the government is targeting growth of 6.0-6.5 percent
this year for the world’s second-largest economy, lowering its range from
2018.
Nearly 3,000 delegates from across the country gathered under tight
security, with legislation aimed at improving conditions for foreign
investors topping the agenda of the two-week session.
“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.
– Taxes cut, spending boosted –
“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, policymakers 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.
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The value-added tax for manufacturers will be lowered to 13 percent from
16 percent and drop one percent for transportation and construction
industries.
Beijing will also lift spending, with China’s targeted fiscal deficit set
to increase to 2.8 percent of GDP, from 2.6 percent last year.
“They need to strike a balance between boosting economic activity and not
restarting another debt-fuelled boom,” said Tai Hui of JP Morgan Asset
Management.
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.
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.
– Economic difficulties –
Despite the slowdown, the government unveiled a military budget increase
of 7.5 percent to 1.2 trillion yuan, though that is lower than last year’s
8.1 percent hike.
China has spent billions on stealth warplanes, aircraft carriers and other
advanced weaponry as it faces territorial disputes in the South China Sea and
issues warnings against independence in Taiwan.
Recent economic data point to the difficulties China faces, with growth in
the last three months of 2018 clocking in at 6.4 percent.
In January, an important barometer of prices in the country’s industrial
sector neared contraction territory while China’s imports fell at the start
of the year.
Manufacturing activity saw its worst performance in three years in
February.
But the country’s stock market soared to its highest point in more than
eight months Monday on renewed optimism about a US trade deal.
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Relations with the United States deteriorated sharply last year after
President Donald Trump hit roughly half of Chinese imports with new tariffs
in an attempt to force trade concessions.
Trump, however, has voiced confidence that he could soon sign a deal with
Xi.
Li said China will settle “trade disputes through discussions as equals”.
Enforcement of any agreement with the US has emerged as a potential
sticking point.
“We faithfully honour our commitments,” Li said.
“Right now both teams are still negotiating because there is still lots
left to do,” Commerce Minister Zhong Shan told reporters, adding there have
been “breakthroughs in some areas”.
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.
The European Union Chamber of Commerce in China, which has voiced concerns
that the foreign investment law was being fast-tracked, cautiously welcomed
the government report.
“We hope that the work report provides real impetus to create a fair and
well-regulated Chinese market with global characteristics,” said Mats
Harborn, president of the European Union Chamber of Commerce in China.
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