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Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

China eyes broad business cost cuts to underpin growth

WT24 Desk

China’s cabinet has unveiled detailed plans to lower business costs in the next several years, the latest steps to cushion an economic slowdown in the world’s second-largest economy, Reuters reports.

Authorities aim to cut financing and labor costs, energy and logistics costs as well as reduce the annual tax burden for firms over the next few years, according to guidance published on a government website on Monday.

China is looking to achieve “‘a reasonable decline’ in the overall cost for firms in the real economy in about three years”, the cabinet said, adding that the measures will help “effectively cope with the downward pressure on the economy”.

Companies have been complaining about rising wages and land prices, in addition to tighter environmental and safety regulations, and some foreign manufacturers have moved to neighboring countries to cut costs.

“Cutting costs will help improve firms’ ability to cope with the impact of economic slowdown, shorten the period of economic adjustments and allow the economy to enter a new cycle,” said Li Huiyong, an economist at Shenyin & Wanguo Securities.

The central bank would maintain ample liquidity in the banking system while keeping an appropriate monetary and financial environment, stepping up support for small firms via differentiated reserve requirement ratios, relending and rediscount, the cabinet said.

Banks will reasonably price their loans and will be barred from linking firms’ loan applications with deposits and charging “irregular” fees, according to the cabinet’s guidance. It added that banks should also step up bad loan disposal. The government will develop equity financing, appropriately expand the size of corporate bond issuance and allow selected firms to conduct debt-to-equity swaps, the cabinet said.

China has already moved to lower labor costs for firms by cutting their pension contributions in some provinces, it said. The government will also relax controls on energy prices in some sectors to reflect market supply and demand, it said.

According to the statement, the government aims to reduce the annual tax burden on firms by more than 500 billion yuan ($75.16 billion) within the next one to two years. In July, a senior central bank official was quoted by media as saying that tax cuts would be a more effective way of stimulating the economy than interest rate cuts, as companies are still unwilling to invest.


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