China's Politburo Calls for Cuts in Macro Tax Burden and Asset Bubbles
Yicai Global
/SOURCE : Yicai
China's Politburo Calls for Cuts in Macro Tax Burden and Asset Bubbles

(Yicai Global) July 27 -- The Politburo of the Communist Party of China, the country's principle policy-making committee, met yesterday to suggest ways to accomplish the five strategic priorities of reducing overcapacity, destocking, deleveraging, reducing costs and overcoming shortcomings.

It was suggested that the key to successfully controlling rising costs is to increase flexibility in the labor market, to curb asset bubbles and to lower the macro tax burden.

China's macro tax burden, the proportion of government revenue to national economic output in a given period, has remained at around 29 percent in the four consecutive years since 2012. Many entrepreneurs interviewed by Yicai Global believe that the current 17 percent value-added tax for the manufacturing industry is too high.

In the past the central government has mainly focused on structural tax reduction and lowering taxes and administrative charges. This time, however, it is calling for a reduction of the macro tax burden, indicating that the government's share of national income may be lowered going forward with incomes distributed to enterprises and individuals going up accordingly, Mr. Hu Yijian, dean of the Institute for Public Policy and Governance at the Shanghai University of Finance and Economics, said.

It was also suggested at the meeting that the key to successfully reducing overcapacity and deleveraging is to deepen basic-level reforms among state-owned enterprises and in the financial sector, while destocking and overcoming shortcomings should be carried out in line with efforts of orderly urbanization and the granting of citizenship to migrant workers from rural areas.

The politburo also stressed that various tax and administrative fee reduction measures should be effectively implemented, and the capacity and strength of public spending should be ensured, guiding private capitalists to invest more in the real economy. Guidance should be provided to ensure the development of currency credit and private financing at a reasonable level, and the focus should be placed on unblocking monetary policy transmission channels, optimizing the credit structure to support real economic growth, it was proposed at the meeting.

Industries suffering from overcapacity and excessive leverage are mostly those with a high concentration of SOEs, Mr. Lu Zhengwei, chief economist at the Industrial and Commercial Bank of China, told Yicai Global. Basic level reforms of the financial sector should involve reform of financial institutions themselves and financial regulation reform.

Reform of the financial sector should focus on risk-based pricing, and financing differentiation can also facilitate an effective reduction of overcapacity, Mr. Lu said. The cost of financing should be increased for businesses in overcapacity industries, thereby prompting them to exit the market.

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