How tax, fee cuts benefit China’s small firms
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.
On
February 22, 2019, workers in the private-owned Hengan Furin Pharmaceutical
Co., Ltd. in central China’s Hubei Province, packed traditional Chinese
medicine formula pellets.
Photo:
Zhang Guorong, People’s Daily Online
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
How tax, fee cuts benefit China’s small firms
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