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China to reduce tax by 900 bln yuan in two years

(People's Daily Online)

18:11, July 19, 2013

Lou Jiwei, the finance minister of China, said that China would not launch economic stimulus policy this year during the fifth round of the Sino-US Strategic and Economic Dialogue. Lou also mentioned that more attention would be paid to promote economic growth and employment with the budget deficit unchanged.

Lou claimed that China was preparing for a financial reformation whose point was the transition of value-added taxes, to improve taxation system. The goal would be reached in one to two years to reduce tax for about nine hundred billion yuan.

It’s said that the overall economic development was stable in the first half of 2013 . The growth of CPI in June saw year-on-year rises of 2.7 per cent, while PPI saw year-on-year decreases of 2.7 per cent and kept declining for 15 months. PMI reduced to 50.1 per cent. Exports and imports fell by 3.1 per cent and 0.7 per cent. The surplus of the international payment balance was shrinking but still remained.

The overall employment situation improved: statistics showed a net increase of 3,420,000 people in work in the first quarter; the ratio of job-to-applicant was 1.07. Nevertheless, university graduates experienced great difficulties finding satisfactory jobs. Their unwillingness of being skilled workers caused structural unemployment.

When talking about the change of economic structure, Lou said that consumption contributed up to 55.5 percent of GDP growth in the first quarter and the proportion of the tertiary industry to GDP was 47.8 percent. He said that consumption and services, replacing investment and industry, would play a more and more important role in GDP growth in the second quarter.

Lou also revealed that China would not launch economic stimulus policy this year. Instead, more attention would be paid to promote economic growth and employment with the budget deficit unchanged.

According to Lou, economic structure should be adjusted with proportion of deficit in GDP, keeping 2.2 percent, unchanged. The general spending of the central departments fell by 5 percent. Apart from salaries, spending would be cut including transfer payment to the local government. Government would also launch tax-abatement policy, especially aiming at micro-enterprises which can promote employment.

Lou said that China was brewing reform to realize sustainable economic and finance development. First of all, expenditure responsibilities would be balanced between central and local government. It would help realize a uniformed and fair market and the equalization of basic public service all over the country; secondly, tax-system would be reconstructed. It would focus on VAT (value-added taxes) transition, applying VAT to service industry and including real estate in the scope of deduction. The goal would be reached in one to two years to reduce tax for about 90 billion yuan; thirdly, reform of the budgetary system would be accelerated. It aimed at reconstruction of a more regular and transparent budgetary system, ways to adjust budget and improvement of local debt management; fourthly, medical care and pension system would be reformed.

As for QE policy’s existence, Lou said that considering the low saving rate and investment shortage, the U.S. should accelerate to reform policy and structure. Although American economy has come back to the path of growth, there is still a long way to go about mobilizing investment, raising saving rate and sustaining economic growth. .

In addition, Lou hoped that China and the U.S. could work together to reinforce international macroeconomic policy coordination. Under the current situation that de-leveraging and inadequate demand prevails, China and the U.S. could promote the re-leveraging of financial institutions and encourage them to issue more loans to help global economic get out of dilemma.

"Some countries expected China to lead world out of global economic gloom, however, unfortunately, our impact is limited.” Lou said. In fact, international multilateral financial institutions still have space for displaying function. For example, the World Bank issues loan at an increase of 20 billion dollars every year which is even less than that in some small banks in China. On the other hand, the capital adequacy ratio of World Bank is 17 per cent and the leverage ratio is too low. Because global hard loan is in great demand, international multilateral financial institutions can impel infrastructure in developing countries to realize global economic resurgence through expanding the size of the loan.

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