How tax, fee cuts benefit China’s small firms

Apart from direct tax cuts, the Government Work Report also stated that China would increase loans from state-owned commercial banks to smaller firms by at least 30 percent.

Workers From Sichuan

By Wang Cong

Contrary to some of the more gruesome headlines, Chen Liang’s small company, which specializes in magnetic materials, is doing rather well. Orders are still coming in and profits swelling, he said.

But when it comes to the future, there’s a problem, says Chen, general manager of Dongguan Jinconn New Material Holdings Company in South China’s Guangdong Province.

The company is coming under heavy pressure from foreign competitors and needs funding to upgrade and expand. “We’re doing OK now, but to survive, we need to change. We need better products and that means better technologies, better equipment and more skilled workers,” Chen told the Global Times on March 7. “But that costs a lot of money.”

Companies like Chen’s are at the center of the Chinese government’s master plan unveiled during the two sessions to rekindle growth in the world’s second largest economy.

Massive cuts to fees and taxes on smaller private companies were the most discussed and applauded measures at the two sessions among a series of actions aimed at creating a better business environment.

In this year’s Government Work Report, Chinese Premier Li Keqiang said China will reduce taxes and fees levied on companies by nearly 2 trillion yuan ($298.24 billion), as part of government efforts to boost vitality.

Extra cash

Value-added tax reforms have helped his company in recent years, Chen noted, but taxes and expenses still eat up an unhealthy chunk of profits.

” We are looking for reasonable support within the existing policies, such as loans to companies,” he told the Global Times.

The effects of the newly announced cuts are hard to estimate, Chen said, but “extra cash is always good, right?”

Apart from direct tax cuts, the Government Work Report also stated that China would increase loans from state-owned commercial banks to smaller firms by at least 30 percent.

If all works out, Chen said, his company’s plan to expand and upgrade may happen.

If tax cuts are just extra petty cash for Chen, for the owner of a packaging firm of about 30 employees in Dongguan, South China’s Guangdong Province, they mean more.

Shen, who preferred not to be fully named, said his company could pay 50,000 yuan less this year compared to the 500,000 yuan last year. “And that’s quite helpful,” he told the Global Times.

Shen’s company, too, is in dire need of cash to support its transition from human labor with rising costs toward machines.

GDP boost

Shen and Chen’s companies are among thousands across the country struggling amid deep changes in the economy and the country is counting on their revitalization to lift the economy.

“As long as market entities are energized, we can boost the internal forces driving development and withstand the downward pressure on the economy,” Li said in the Government Work Report.

Private companies play such a critical role in the country’s economic growth that the Chinese language buzz phrase “five, six, seven, eight, nine”has become a popular phrase at the two sessions.

The numbers refer to the country’s private sector’s over 50 percent contribution to tax revenues, over 60 percent to GDP, over 70 percent to technological innovation, over 80 percent to urban employment and accounting for over 90 percent of total companies in China.

“If we can get the private sector running again, then that’s all we need to stabilize growth and jobs,” Jiang Zhen, a fiscal policy expert at the National Academy of Economic Strategy in Beijing, told the Global Times.

“Tax cuts mean more cash for companies to invest and hire more people.”

Cao Heping, a professor of economics at Peking University, said Thursday that assuming companies reinvest all the 2 trillion yuan in tax and fee cuts and all the other factors from price to demand remain unchanged, the measures could add between 0.5 and 0.9 percentage points to economic growth.

“That would be a huge help,” he said.

Source: Global Times/People’s Daily

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