Xi vows tax reform, to improve China’s Budget in new economic blueprint
He pledges to gradually allow regional authorities to receive more consumption tax, signals that more revenue will shift to local coffers
PRESIDENT Xi Jinping unveiled sweeping plans to bolster the finances of China’s indebted local governments, as the ruling Communist Party unveiled its long-term blueprint for the world’s second-largest economy.
China’s top leader pledged to gradually allow regional authorities to receive more consumption tax and signalled that more revenue would shift from the central to local coffers, in a near-22,220 character document published by the official Xinhua News Agency on Sunday (Jul 21).
The report comes days after Xi wrapped a twice-a-decade conclave in Beijing where some 400 senior officials endorsed his economic vision. The decision document signalled that while China’s most-powerful leader since Mao Zedong is fine-tuning policies to manage risks, no major shifts are afoot in his overarching plan to bet on advanced manufacturing to propel his nation’s US$17 trillion economy.
China’s local government financing vehicles are battling a 66 trillion yuan (S$12.2 trillion) pile of debt, as Beijing reins in a sector that for decades relied on borrowing to boost growth. With revenue from land sales falling due to the property slump, local authorities need to find ways to make money. Their combined budget deficit last year was a record 15 trillion yuan, and it’s only looking a little smaller so far this year.
Officials will “establish a central-local fiscal relationship that has clearly delineated power and responsibilities, is coordinated with the fiscal resources, and is balanced regionally”, according to the document.
Beijing will, in addition, “increase local governments’ autonomous fiscal resources and also expand tax sources for local governments”.
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On private enterprises, the decision pledged to break down market entry barriers by further opening up the infrastructure sector and allowing them to participate in more major national construction and technology projects. There was also a vague vow to improve private firms’ access to financing.
The document provided little information on how to boost domestic demand, other than vowing to better use government investment to drive private investment. It also pledged to set up a “long-term mechanism” for expanding consumption, reduce restrictive measures for spending and reasonably increase public consumption.
In a separate explanation delivered to the plenum, Xi told senior party officials that deepening reform was imperative as global conflicts were intensifying. China “faces escalating external suppression and containment”, he added. “Our development has entered a period where strategic opportunities coexist with risks and challenges, with increasing uncertainties and unpredictable factors. Various ‘black swan’ and ‘grey rhinoceros’ events may occur at any time.”
Xi also declared that national security had been put in a “more prominent” position in the decision. The document itself said China will strive to “achieve positive interactions” between development and security.
The lengthy report fleshed out more than 300 measures spanning economic, political and social issues as China confronts a growth slowdown and rising geopolitical tensions. Xi had vowed to make “high-quality development” the guiding force for the Chinese economy at the four-day meeting known as the Third Plenum, a vague slogan typically interpreted to emphasise the quality of growth over its absolute pace.
A communique published on Thursday after the gathering reflected Xi’s desire to invest in advanced manufacturing but gave little indication that Beijing would heed calls from some analysts to rebalance the economy or shore up domestic demand. Markets reacted poorly to the lack of policy signals.
Officials said in a press briefing on Friday that Beijing would increase local governments’ financial resources and expand their tax sources, which could help relieve their debt burden and stimulate consumption. They also pledged to support private companies to lead technology developments.
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