MNI China Press Digest July 11: Tax Reform, SMEs, Rural Banks

Highlights from Chinese press reports on Thursday:

• Anticipated changes to local tax systems will likely be led by consumption tax distribution reform, increasing local authority revenue by CNY800 billion if the central government allows local collection to increase from 0% to 50%, helping to ease local fiscal pressure, said Sun Kunpeng, associate professor at Central University of Finance and Economics. Analysts suggested taxing more luxury goods, and keeping tax rates for tobacco, alcohol, refined oil, and passenger cars stable, the newspaper said.
• China’s SME development index reached 89.0 in Q2, down 0.3 points from Q1, but higher than second quarter 2023, the China Association of Small and Medium Enterprises said. The results showed SME development remained insufficient with firms facing high cost of financing, according to Wu Dan, a researcher at the China Banking Research Institute. Fu Yifu, a senior researcher at Xingtu Financial Research Institute, said authorities should use tax cuts and subsidies to improve operating conditions and boost SME confidence. (Source: Securities Daily)
• China has accelerated rural bank restructuring with nearly 40 mergers as of end-June this year, Yicai.com reported. Last year 1,636 rural banks existed, accounting for about 41% of national banking institutions, a decrease of 10 banks compared to 2022, data by National Financial Regulatory Administration showed. Rural firms’ risk exposure since the 2020 economic slowdown has caused downward pressure on local bank asset quality, said Yicai, citing an unnamed source.