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Issue 571 28-05-2012
Summary:1. Rescuing GDP Growth
2. Supporting Private Enterprises Going Abroad
3. Jiangsu and Zhejiang May Join Pilot VAT Reform

Highlights from the EO print edition, No. 571, May 28, 2012

Rescuing GDP Growth
News, cover
~At an executive meeting on May 23, the State Council said it would concentrate on stable economic growth and strengthen its adjustment measures, which was interpreted as a sign that there will be more policies to stimulate the economy.
~ The signal was passed to ministries before the meeting. More than 70 projects that the NDRC had planned for the second half of this year have been fast tracked for approval. According to the State Council’s plan, ministries will also be issuing detailed regulations on attracting private investment before June 5. Wang Zhihao (王志浩) from Standard Chartered Bank thinks that China’s macroeconomic policies have loosened. Chen Dongqi (陈东琪) from the NDRC thinks that China’s economic slowdown could coincide with a decline in inflation.
~The ministries’ policies are being interpreted as the preparation for the economic slowdown that was signaled by the data in March. Although the NDRC has accelerated the approval procedure from March and seven eastern provinces have pledged to boost exports by 10%, the data was negative from April, especially for electricity consumption and bank loans.
~ The profits of central state-owned enterprises in the first four months this year also dropped by 13% compared to the same period last year. As well as the meeting to bring forward the approval of investment projects and infrastructure projects in the “twelfth five-year plan”, subsidy policies were also introduced in May. The Finance Ministry allocated 66 billion yuan to the construction of social housing on May 24 and an official from NDRC revealed that cooperate bonds issued this year may exceed 5 trillion yuan.
~Supportive tax and social insurance policies will also be introduced for middle and small-sized enterprises, according to a source from the Ministry of Industry and Information Technology.
~ The State Council has also arranged a subsidy of 26.5 billion yuan for purchases of energy-saving air conditioners, flat-panel televisions, fridges, washing machines and water heaters.
~Many also hope to see a stronger policy of tax reduction. So far, the policy announced by the Ministry of Finance will follow same six measures as last year. Gao Peiyong (高培勇) from the Chinese Academy of Social Sciences thinks the effect will be a reduction of less than one trillion yuan and he believes that there should be greater cuts to value-added tax. Chen Dongqi (陈东琪) from the NDRC also suggested three areas for the structural tax cuts including the personal income tax, taxes for the emerging industries and the import-export tax.
~ Chen Dongqi (陈东琪) from the NDRC thinks that the risk of an economic downturn is growing and that GDP is likely to drop below 7% if there aren’t any supportive policies. Chen predicted the annualized rate of consumer price growth will fall to between 2 percent and 2.5 percent in June and keep declining in the second half of the year. “The slowdown of GDP and CPI at the same time can be dangerous and I’ve been advocating for measure to avoid that situation.” said Chen. As for the monetary policy, one person told the EO that there will be more reductions to the reserve required ratio, especially for middle and small-sized financial institutions.
Original article: [Chinese]

Draft Policies Aimed at Supporting Private Enterprises Going Abroad Submitted to State Council
News, page 3
~ The EO has learned that a draft government proposal aimed at supporting private enterprises wanting to invest abroad has been submitted to the State Council, China's cabinet.
~ The proposal was put forward by the All-China Federation Of Industry & Commerce and the Chinese Academy of International Trade and Economic Cooperation.
~ The report mainly covered the current situation and outlined difficulties that private enterprises face when they try to invest abroad. The report also proposed some policy responses and other suggestions.
~ If the proposal is approved, private Chinese companies could receive substantial support in terms of financing, tax breaks, restrictions on handling foreign exchange, insurance etc.
~  According to the report, by the end of 2010, overseas investment by China’s non-state-owned enterprises had reached $104 billion.
Original article: [Chinese]

Railways Lift Freight Fees by 9.5 Percent
News, page 3
~ Last Sunday, China’s rail freight price was raised by 0.01 yuan per ton per kilometer, a 9.5 percent increase.
~ From 1997 to 2011, the railways ministry has raised the freight price for 9 times, and most of those increases have been in increments of between 0.002 yuan and 0.004 yuan a kilometer.
~ One person who is familiar with the issue revealed that the price increase is a supportive policy after the government took into consideration the railway’s losses in the first three months of the year.
~ It is predicted that the price increase will bring the Ministry of Railways extra revenue of between 25 billion yuan and 30 billion yuan.
~ The Ministry of Railway’s made a loss of almost 7 billion yuan in the first quarter of 2012, that compares to a 3.8 billion yuan loss in the first quarter of 2011.
~ The EO learned that the price increase is mainly covers national rail lines, and lines used to transport coal were excluded because of opposition from the National Development and Reform Commission.
~ Despite the increase in the rail freight price it is still a only third of the road transportation fees and there are expectations that it will be raised again.
Original article: [Chinese]


Farmers in Some Regions May Sell Wheat at Government Purchasing Price
News, page 4
~Wheat prices are expected to rise slightly this year and in most places will be higher than the price at which the government pledges to buy any unsold wheat from farmers. Regions such as the southern part of He’nan province, Anhui, and parts of Jiangsu province will have such a large wheat output that the minimum state purchase price may fall to 2.04 yuan per kilo.
~ According to one person in the industry, the national wheat stock has fallen from previous years. And as the price of the corn has risen significantly, demand for wheat has been boosted from its use as a substitute animal feed. The National Development and Reform Committee (NDRC) and the State Grain Administration all expect to purchase more wheat to boost the national stock.
~ Besides surging demand, concerns have also been raised for the quality of wheat in government reserves.
~ Back in the year 2009, the Wudeli Group, one of the leading flour processing companies in China, submitted a written statement to the NDRC saying that wheat purchased from China Grain Reserves Corporation’s authorized stores was in a poor condition and contained impurities. Official investigations were held, but to no avail - the stores continued to disobey the regulations and used every technique to get more subsidies.
Original article: [Chinese]



Jiangsu and Zhejiang May Join Shanghai in Piloting Value-Added Tax Reform
Nation, page 13
~ Shanghai's piloting of a proposed tax reform that could soon be expanded nationwide appears to be working. The pilot tax project, which saw turnover tax replaced with VAT in some industries has been working to the benefit of companies in China's largest city. According to an announcement by Shanghai tax department, 129,000 enterprises have made a total of 2 billion yuan in tax savings in the first quarter of this year as part of the pilot which is focused on transportation and service industries in Shanghai.
~ Given the tax benefits offered to Shanghai-registered companies operating in the Yangtze River Delta, companies in the same industries from neighboring Jiangshu and Zhejiang may move to Shanghai if the tax reform is not adopted nationwide, says Wang Depei (王德培), the vice-chairman of the China Society of Economic Reform (中国经济体制改革研究会). "Some enterprises have moved to Shanghai, but not a lot." says Hu Jianyi (胡建怡) from Shanghai University of Finance and Economics
~ Among the 129,000 enterprises that have benefited from the new tax rule, 88,000 small-scale taxpayers (小规模纳税人) benefited the most from having a turnover tax levied at 5 percent by a VAT levied at 3 percent, which equates to about a 40 percent reduction in their tax burden.
~ However there are also some enterprises who have been paying more taxes since the reform was introduced. These companies were not able to collect enough VAT invoices to deduct the input VAT. Shanghai have allocated special funds to support these companies, nearly 400 million yuan has been provided to around 2,000 companies which have seen their tax burden increase by more than 30,000 yuan.
~ The EO has learned that Shanghai has proposed expanding the pilot reform to other related industries such as construction, real estate, insurance, catering and entertainment.
~ Meanwhile, Shanghai's piloting of the reforms seems to have put pressure on neighboring provinces.
~ A tax official in Jiangsu said they already felt pressure here, as "enterprises will take Shanghai as the first choice when they are looking for a supplier, because they can provide the VAT invoices that can offset the cost." The EO learned that many provinces and cities including Jiangsu have invited accountants to help them estimate the impact on tax revenue if they were to introduce similar reforms. The official from Jiangsu also revealed that Suzhou will also pilot similar reforms.
~ According to the plan, provinces and cities in the Yangtze River Delta could adopt the pilot reform together with Shanghai.
~ As the replacement of the tax also means the change from a local tax to a tax collected by the central government, Jiangsu and Zhejiang were worried about a loss of local funds. However, from the experience of Shanghai, the allocation of tax is not a big problem and the pilot project has also been specially designed to protect the interest of the local government. Therefore Jiangsu and Zhejiang will be more proactive in applying to join the expansion of the reforms and are likely to be among the second tranche of areas piloting the reform.
Original article: [Chinese]


Small Town Makes Farmers' Land Tradable
Market, cover
~ Farmers’ land can’t usually be traded in China. But Shaxian, a small Fujian province town that is famous for a chain of restuarants with the same name, is experimenting with making farmers’ land a financial product that can be exchanged, not just between locals, but also with people from other cities and provinces.
~ Though farmers are still not allowed to sell their plots of land, they can rent them to businessmen; they may also sign contracts with the local government and let officials seek tenants on their behalf.
~ The farmers can also pledge their land as security to banks. If they can’t repay their debts on time, they will forfeit the land to the village committee who will rent it out to other villagers who can repay the loan instead.
~ To encourage businessmen to rent land from farmers, the local government has been providing subsidies and constructing apartment buildings for farmers so that more land will be available for exchange.
~ Since Shaxian restaurants are popular across the country, many local workers are moving out to run their own restaurants, causing a shortage of labor in the town and encouraging the local government in its ambition to make farmers’ land exchangeable.
Original article: [Chinese


CSRC Stock Market Reforms: Letting the Market Work
Market, Page 17
~ The China Security Regulatory Commission (CSRC) has issued a whole raft of new policies in recent weeks, with everything from a substantial reduction in the transaction fees charged on trades, to expanding the room for qualified foreign institutional investors (QFII) to invest in China's domestic stock marked. The regulator has also issued new rules that require listed companies to pay dividends in a more timely fashion and have released new IPO rules. Unlike in the past, when major policy announcements would always lead to immediate rise or fall in the two main A-share indexes, these latest announcements did not have any noticeable effect on the market, despite many analysts viewing the effect of the new policies as positive for the market.
~ Aside from issuing new policies, a major shake-up of personnel at the stocks regulator is also taking place. Similarly, these announcements have also failed to move markets.
~ Both of these reforms are being pushed by the newly-appointed head of the CSRC, Guo Shuqing.
Original article: [Chinese]

Correction: When this summary was published on May 28, the name of the small town experimenting with land exchanges was misspelt. It has been corrected to Shaxian. The earlier summary also incorrectly said that the town was famous for its dessert - it is famous for its restaurant chain.

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