Colossal tax cuts to inject strong momentum into China's economy

Note: The following is an edited translation of a commentary from the Chinese-language "Commentaries on International Affairs."

China's government has announced a tax and fee reduction plan worth billions of dollars in a bid to reduce the burden on its enterprises and boost consumption in its domestic market. The move is expected to inject a strong momentum into the world's second-largest economy, which will in turn have a ripple effect through global markets.

China's Premier Li Keqiang delivers a government work report at the opening of the second session of the 13th National People's Congress in Beijing on Tuesday, March 5, 2019. [Photo: Xinhua]

According to the government work report submitted by China's Premier Li Keqiang on Tuesday to the country's legislators in the National People's Congress, China will further deepen its reforms of value-added tax, reducing the rates by 1 to 3 percentage points in sectors such as manufacturing, transportation, and construction. Other supporting measures include lowering corporate pension payments, and increasing tax deductions for the services sectors. The plan will cut the corporate cost burden by nearly two trillion yuan ( about 300 billion U.S. dollars). At the same time, the government will step up targeted cuts in the reserve requirement ratio for small and medium-sized banks with the aim to boosting lending to small and micro companies by more than 30 percent.

These changes follow cuts of about 1.3 trillion yuan (around 190 billion U.S. dollars) to taxes and fees last year, including the value-added tax, individual income taxes, and corporate income taxes.

This economic stimulus plan is expected to benefit market players at a time when China's economy is experiencing a slowdown caused by various reasons on both domestic and global markets. The tax and fee cuts will leave companies with more capital that can be invested in research and development, which will encourage industrial upgrading and in turn lay the groundwork for future growth. The cuts are also expected to help create more jobs and raise wages, which will fuel domestic demand and reduce reliance on imports. And because the measures will apply equally to companies in China with foreign owners, it could have the effect of encouraging more inflows of foreign capital.

China's economy faces new challenges as it enters a new stage after almost 40 years of unremitting double-digit development. The bigger-than-anticipated stimulus plan, which has been well received both at home and abroad, will stimulate the market and keep the economy in good shape for the years to come.