China: Less Taxes, More Investments

The report of the Prime Minister of the State Council of China, Li Keqiang, presented to the National People's Assembly on 5 March, reaffirmed the process of reforming and opening up the economy. Beyond repeated references to the leadership of the “Central Party Committee that has Comrade Xi Jinping at its center” or its thinking about “socialism with Chinese characteristics for a New Era”, the document cites the reduction of taxes, incentives for companies, the importance of the market and the promotion of first job to achieve the target of GDP growth of 5.5 per cent this year.

The paper argues that most investments come from the non-governmental sector and that policies need to be implemented to encourage the private sector to invest; it includes phrases such as government will “tighten its belt” and keep its spending under control for the benefit of the people; policy tools should support the real economy along with a stable exchange rate; the government will also strengthen employment through fiscal and financial policies to stimulate first-time employment and eliminate or revise excessive regulations that hinder the creation of new jobs and businesses.

Point 2 is dedicated to describing the reduction of taxes and charges. The rebate will be aimed at supporting the manufacturing sector, small and medium-sized enterprises and workers. Exemptions will also be added for the payment of value-added tax and corporate tax will be halved for SMEs whose income is between $160 and $500,000. Similar measures should be taken by local governments. Tax reimbursement will reach $416 billion and VAT reimbursement to 200 billion dollars.

Point 3 begins by saying: “To develop a high-level socialist market economy we must allow both the government and the market to ensure that the market plays a decisive role in the allocation of resources and that the government fulfills its obligations.” Paragraphs later adds “we will give equitable and legal protection to property rights and the right to independent management of companies; by doing so we will create a favorable environment for companies under all forms of ownership to compete and grow together.”

Point 6 concerns increased agricultural production to ensure stable production and sufficient supply of grain and other imported products. The document specifically mentions soy and other oilseeds. It will also increase the minimum price for rice and wheat and ensure the supply of fertilizers, and the policy of subsidies to grain producers will continue and strengthen it in the main production areas. The Government will expand and strengthen insurance for export credits, improve exchange services and accelerate reimbursements.

Point 7 highlights the importance of external investment. The Government will ensure national treatment of foreign capital and stimulate entry into new sectors, improve services for the promotion of foreign investment and accelerate the launch of externally financed projects. This point mentions when passing the Silk Road Initiative (BRI) and the Regional Integral Partnership Agreement (RCEP).

The programme outlined by Prime Minister Keqiang appears to have a “supply side” orientation to drive growth through investments to improve productivity and business and employment creation. While the State still has a dominant position, the document continues to reiterate that the market contributes to a better allocation of resources and to the generation of new jobs. This approach may not arouse the enthusiasm of economists such as Mariana Mazzucatto or Yanis Varoufakis who are accustomed to recommending more State and more taxes.

KEEP READING: