Economy > Macro

Fiscal policies to play critical role in China's economic growth in 2019

CFBOND
2019-01-05 11:07

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The Chinese government is set to make greater efforts to cut expenses and taxes for Chinese enterprises in 2019 with the overall reduction in expenditures and taxes projected to reach somewhere between 1.5 trillion yuan (219 billion U.S. dollars) and 2 trillion yuan (291 billion U.S. dollars), according to a report developed by economists from the Peking University on Thursday, The Paper reported.

The report, which is titled the China Economic Outlook for 2019 and written by scholars at the Guanghua School of Management, Peking University, is aimed at analyzing and forecasting China's economic situation for 2019.

The report says that given the uncertainties about the Chinese economy during the past year, the Chinese government will adequately loosen up its fiscal and monetary policies with the purpose of balancing the overall supply and demand, and adopt more moderate and flexible measures to address complicated international issues such as the trade frictions between China and the U.S.

The report predicts that as long as these measures can be effectively implemented, the Chinese economy will reverse the downward trend in the second quarter of 2019 and achieve a steady growth for the rest of the year.

The report holds that fiscal policies will become a major stimulus for China's economic growth in 2019.

On the one hand, the report argues that there will be a substantial increase in the amount of special local government bonds in 2019, which is expected to significantly push up infrastructure investments across the country. According to the report, the amount of such bonds is projected to exceed 4.7 trillion yuan (685 billion U.S. dollars), which will lead to an increase of more than 3 trillion yuan (437 billion U.S. dollars) in infrastructure investments in 2019 compared with the infrastructure spending last year.

On the other hand, the report points out that Chinese enterprises will enjoy greater cost reduction in 2019 with the overall cut in expenses and taxes to be paid by enterprises expected to reach somewhere between 1.5 trillion yuan (219 billion U.S. dollars) and 2 trillion yuan (291 billion U.S. dollars).

Apart from massive tax cuts, more preferential tax policies are also expected to be rolled out for Chinese enterprises this year, according to the report.

The report says that thanks to the rapid growth in revenue derived from value-added tax (VAT) over the past few years, there will be enough room for the Chinese government to streamline its VAT policy in an effort to provide enterprises with more tax benefits in 2019.

Meanwhile, China's corporate income tax rate is also expected to be slashed by more than 2 percentage points this year, which, combined with the adjustment to the VAT policy, will greatly boost the production and investment activities of Chinese enterprises.

Under the context of much less stringent tax policies, the report predicts that the ratio of China's fiscal deficit to its GDP will bounce back to 3 percent in 2019 and probably surpass 4 percent at the year-end if the downward pressure on the Chinese economy keeps mounting.

The report also holds that the minimum tolerable GPD growth rate for the Chinese government is at around 6.3 percent. And if so, China's GDP per capita will break the threshold of 10,600 U.S. dollars within this year.
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