MNI China Press Digest Aug 1: PBOC, PMI, Consumption Tax

Highlights from Chinese press reports on Thursday:

• The People’s Bank of China will likely cut the reserve requirement ratio in Q3 to fill the funding gap amid increased maturity of medium-term lending facilities since August and accelerated issuance of government bonds, Securities Daily reported citing Li Chao, chief economist at Zheshang Securities. The PBOC may cut interest rates in Q3 to accelerate credit supply, said Wang Qing, chief macro analyst at Golden Credit Rating, noting further reduction in the policy interest rate in Q4 cannot be ruled out depending on economic and price conditions.
• China’s July PMI of 49.4 indicates the government should expand public investment in H2 to drive up corporate orders and stimulate domestic demand, Zhang Liqun, analyst at the China Federation of Logistics and Purchasing, told the Securities Daily. Zhao Qinghe, a senior statistician at the National Bureau of Statistics said insufficient market demand and extreme weather negatively impacted producers in July. Wen Tao, analyst at the China Logistics Information Center noted manufacturers remained optimistic, with production and operation activity expectation sub-indexes above 53.0.
• China should speed up legislation to promote consumption tax reform following the Party’s Third Plenum, which called on local governments to increase their share of tax revenue, Liu Zuo, former director at the Taxation Research Institute of the State Administration of Taxation wrote in a commentary published on 21st Century Business Herald. China could expand taxable items to a wider range of luxury goods and high-end consumption including private jets and golf. Taxation on items with strong regional characteristics, such as entertainment and sports, should be assigned to local governments, while that on flexible items such as cigarettes, refined oil and automobiles should be retained by the central government to avoid disparities in tax revenue across regions, Liu said. The central government currently collects 100% of consumption tax revenue.