Trade war spurs Li Keqiang to offer business incentives
- The showdown helped shape the premier’s work report with references to challenges and risks but besides the tax cuts and help for the private sector, there was emphasis on the importance of investment in research
A gross domestic product target of 6-6.5 per cent, a softening of last year’s 6.6 per cent growth that leaves the central government with room to move, may have grabbed the headlines.
But it was the United States-China trade war that framed the opening session of the National People’s Congress.
It helped shape Premier Li Keqiang’s annual government work report, from the hurdles the economy faces and the way forward to overcoming them by increasing the role of the market and private sector.
Both the report and the annual budget showawareness of the impact of the trade war on a slowing economy. The report is sprinkled with references to challenges, difficulties and risks, as it rolls out policy solutions featuring 30-odd mentions of “reductions” of taxes, fees and charges to help the economy meet these threats.
Instead of resorting to the debt-fuelled stimulatory spending of the past, tax cuts are the key.
Most eye-catching is a near one-fifth cut in value-added tax for the manufacturing industry from 16 to 13 per cent, followed by a reduction from 10 to 9 per cent for the transport and construction sectors. The prospect of reductions in electricity charges, highway tolls and the like enhances the gains.
It does not take an economist to see where the policy priorities and focus lie.
Tax reductions and pro-business policies for the private sector, which dwarfs the state sector especially in employment, are aimed at helping China cope with unprecedented challenges, not only the trade war but also restructuring the economy and running down an overhanging debt burden.
Relief from taxation is reinforced with encouragement of lending to small and medium-sized businesses and to micro-enterprises in the digital economy.
China finds itself at a crossroads of current economic challenges and future direction, calling for a shift from reliance on exports to a focus on domestic consumption. To this end, the main theme throughout the work report is to help business present a better climate for investment.
Integral to this approach is instilling a sense of shared public benefit. Hence welfare measures in health and education as well as personal tax cuts. This is not only to ensure public support at a difficult time, but also to encourage domestic consumption through protecting individuals’ spending power.
Amid an air of confidence that an end to the trade war may not be far off, Li assured foreign investors of further opening up that would increase their opportunities. He avoided the sensitive issue of “Made in China 2025”, or the goal of global technological leadership, a bone of contention with the US.
But both the work report and the budget still emphasised the importance of investment in research to help mainland tech companies grow. That gets national priorities right.
