China to further slash taxes, fees for manufacturing sector

Efforts to stimulate growth potential, boost economic vitality, say experts

Manufacturing enterprises in China will benefit from the government's continued efforts to cut value-added tax and fees this year, and the total scale of the reductions in cost for the sector was expected to reach 1.65 trillion yuan ($240 billion) for 2019, officials said.

Last year, the total reduction in taxes and fees for companies were forecast to reach 2.36 trillion yuan, and the fee reductions for manufacturing companies accounted for nearly 70 percent of the total, the Ministry of Industry and Information Technology said this week.

The value-added tax of the manufacturing sector, the backbone industry in China, has been cut to 13 percent. There is still room for further reductions, industry experts said.

The key measures rolled out in early January by the State Council aims to further improve the business environment for enterprises. For example, enterprises with annual revenue of 20 million yuan or higher, will enjoy favorable power policies like joining market-oriented electricity transactions to reduce costs.

"Continuing to implement tax cuts and fee reductions for companies, particularly for the manufacturing sector, will help reduce their burden and bring more benefits. The measure will also guide enterprises to increase investments in research and development and promote the transformation and development of the sector," Zhang Yiqun, deputy director of the China Special Committee on Budget Performance, was quoted in a report by the Securities Daily.

"The tax cut of the manufacturing sector has reached a certain scale. Next, we should focus on fee reduction, especially on the monopolistic industry fee charges such as fees of electricity use, telecommunication and transportation. Thus, it will help further stimulate the growth potential and vitality of the manufacturing industry," Zhang said.

He added that the government should continue to build a market mechanism and free and fair competition environment, and thus shape a stable tax cut and fee reduction mechanism.

In the first 10 months of last year, the government cut taxes totaling 1.97 trillion yuan for companies nationwide. From April to October, reduction of taxes in the manufacturing and wholesale sectors reached 459.9 billion yuan, down 25.7 percent year-on-year, according to the Ministry of Finance.

In 2018, the State Grid Corp of China met the target of lowering electricity prices by 10 percent for general industrial and commercial companies. In 2019, the State Grid met the target of lowering the electricity price by another 10 percent for those companies. In the two years, the total cost savings have reached 155.6 billion yuan.

"By further reducing the burden of manufacturing enterprises, it will help promote the investment and development of the sector, and thus form a benign cycle. Tax cuts and fee reduction are an important measure to help lower the costs and they will help manufacturing companies to raise their product qualities," said Liu Xiangdong, an associate researcher at the economic research department of the China Center for International Economic Exchanges.

Chen Bin, executive vice-president of the China Machinery Industry Federation, said the policy will help related companies to achieve high-quality development, transformation and upgrade the manufacturing capabilities.

"In addition to saving costs on power, transportation and financing, and relieving the burden of Chinese manufacturers, the government's tax cut and cost-reduction measures will support the growth of the producer price index (PPI), and create an ample space for domestic companies to invest in innovation and sales network development," Chen said.

With more funds available in hand, China's construction machinery makers, including Sany Group and Xuzhou Construction Machinery Group, have already put more efforts in the transformation to digital and smart technology, green production, and upgrading of traditional sectors.

Chen added that Chinese companies should pay attention to the optimization of the business environment related to the service sector and the operational mechanism of manufacturers.

The government should create competitive financing conditions for small-and medium-sized manufacturing companies, and encourage more foreign companies to partner with them to expand in both the home and overseas markets.

Wei Xufeng, vice-president of Dalian Huarui Heavy Industry Group, said the essence of the government's targeted tax and fee reduction policy is to promote manufacturers' capital turnover and boost activities in research and development in State-owned and private companies.

"Besides factories, we have also benefited from reduced charges on roads, railways and ports, and regulate charges for banking and intermediary services. As an equipment and machinery exporter, these moves have effectively reduced the burden on our operations in the domestic and export market," Wei said.

Supported by over 10,000 employees, the Dalian-based SOE has sold its products in 91 countries and regions, including Australia, South Africa and Italy. Its products have served sectors such as metallurgy, mining, ports, shipbuilding and energy.