China to intensify fiscal and financial support to tide businesses over difficulties

China will make further efforts to ensure the full delivery of all support policies introduced this year, better leverage its proactive fiscal policy, and scale up financial support for the real economy to help businesses, especially smaller ones, to overcome the difficulties, the State Council’s executive meeting chaired by Premier Li Keqiang decided on April 14.

The Chinese government attaches great importance to advancing both outbreak control and economic and social development. General Secretary Xi Jinping underlined the imperative to proactively leverage macro policies, and scale up support for seriously affected sectors and smaller businesses to help them weather this difficult time. Premier Li Keqiang required that both fiscal and financial measures be harnessed, and policies such as tax and fee cuts, financial support and assistance to companies for maintaining payrolls be fully delivered to help smaller firms.

“The support measures we have rolled out since the start of this year are adequate and robust. What is crucial is to ensure their full delivery,” Premier Li said.

The meeting took stock of the policy measures rolled out this year by the Chinese government to boost containment supplies, support businesses, and restore economic activities.

In terms of tax and fee cuts, value-added tax (VAT) relief was introduced for micro and small-sized enterprises and self-employed businesses. The export tax rebate rate for selected products was raised. The loss carry-forward period for companies in transportation and hospitality sectors was extended. Employers' social insurance contributions were temporarily lowered or waived, and payments to the housing provident fund were deferred. Roads and expressways were made toll-free, and electricity and gas rates for enterprises were cut.

These measures, together with the carry-over effect of last year’s tax and fee reductions, are expected to lower business costs by 1.6 trillion yuan.

In addition, part of the 2020 quota of local government special bonds totaling 1.29 trillion yuan was allocated in advance.

In terms of financial support, three cuts in the required reserve ratio, and re-lending and re-discount provided financial institutions with 3.55 trillion yuan in low-cost capital to issue low-interest loans to businesses. As of the end of March, some 880 billion yuan in principal and interest payments of corporate loans had been deferred.

“Tax and fee cuts are widely welcomed by micro, small and medium-sized companies, yet they are still confronted with the pressing difficulty of high rents and labor costs,” Premier Li said. “Sub-national governments have taken some steps to help. Relevant departments should also swiftly work out measures to support businesses in retaining workers, otherwise employment will be directly affected.”

The meeting called for building on the previous support measures to further intensify the proactive fiscal policy through a multi-pronged approach. It also urged expeditious allocation of an additional amount of local government special bonds in advance upon completing the required procedures.

More steps will be considered to strengthen the role of the financial sector in supporting the real economy, especially the smaller businesses. Support will be extended to manufacturing and service-providing companies to lower their renting and hiring costs. The subsistence needs of people living in difficulty will be better met.