China will use tax and fee cuts, not massive quantitative easing, to boost economy
15 March 2019, 16:43
China will not resort to massive quantitative easing measures to boost growth, but will instead implement broad-based tax and fee cuts for firms to unleash market vitality, Chinese Premier Li Keqiang said on Friday (March 15).
And along with administrative streamlining and impartial regulation, these measures will go a long way to sustain growth “within a reasonable range”, he told reporters after the close of the country’s annual parliamentary meeting.
The Chinese economy grew at 6.6 per cent last year, the slowest in nearly three decades. For this year, the government has lowered its growth target to a range of 6 to 6.5 per cent, from around 6.5 per cent for 2018.
The larger-scale tax and fee cuts this year will yield a dividend of some two trillion yuan (S$403 billion) for companies of all types of ownership – private, state and foreign-owned – and directly reach all market players, said Mr Li.
“It’s an important measure in countering the downward pressure (on the economy),” he said at the press conference in the Great Hall of the People.
China still has enough policy tools to keep economic growth stable, said Mr Li.
This year, the budget deficit ratio will be raised by 0.2 percentage points, below the international warning line of 3 per cent.
And there is room to further cut the required reserve ratio for banks and interest rates.
“We are not going for monetary easing, but trying to provide effective support for the real economy,” he said.
“I have confidence that China’s economy will remain an anchor of stability for the global economy,” he added.
To make up for the reduction in government revenue due to the tax and fee cuts, Mr Li stressed that both the central and local governments must tighten their belts and further cut back on expenditure.
State firms are also required to turn in a larger share of their profits to the central government’s coffers.
The government will take back fiscal funds that have long stayed unused.
Altogether, these measures will yield an additional one trillion yuan in government revenue.
Mr Li noted that while cutting taxes will result in a dip in government revenue in the short term, it will effectively expand its tax sources over a longer period, as firms will be energised and can create more jobs and generate more output.