MNI EXCLUSIVE: China To Announce More Stimulus, Advisors Say

--Further Fiscal Package Could Come During 'Two Sessions' Meetings

--Budget Deficit Will Rise, But Most See 3% As Still Taboo

     BEIJING (MNI) - China is set to announce further fiscal stimulus to boost a

slowing economy, with measures likely to include raising the budget deficit,

increasing quotas for local government debt and further cutting taxes and fees,

government advisors told MNI.

     A reduced tax burden could be announced as soon as next week, as

policymakers and politicians gather for the annual 'Two Sessions' meetings, with

"lower employer social insurance payments, value-added tax rate cuts and even

corporate income tax (cuts)," all possible said Zhang Bin, researcher for the

National Academy of Economic Strategy at the Chinese Academy of Social Sciences.

     One widely-discussed VAT reform, merging three rate brackets into two,

could be announced. "The 16% and 10% bracket will merge, but it is unlikely to

be cut directly to a 10% bracket," said Zhao Quanhou, director at the Chinese

Academy of Fiscal Sciences under the Ministry of Finance.

     Zhao also suggested the authorities could consider subsidies for sectors

which see VAT rates rise as a result of a switch to a standardised mid-rate.

     --DEFICIT RATIO

     Advisors agree that the targeted budget deficit ratio will increase from

this year from 2018's 2.6% of gross domestic product, but above 3% remains

taboo. However, some advisors are still pushing for a bigger deficit this year.

     Jia Kang, former head of a Finance Ministry research institute, told MNI

the authorities should consider a deficit of 3% if not higher, noting the level

was only a psychological threshold.

     And if the deficit is raised to 3% this year, it could be raised still

higher next year if needed, Jia said.

     Just how far policymakers are prepared to go will depend on their tolerance

levels for a slowing economy and whether easing trade tensions with the U.S.

reduce the risk of external shocks, MNI understands from the advisors.

     --SOCIAL INSURANCE

     Smaller Chinese enterprises have struggled with cash flow amid rising

labour costs and slowing sales. Government deleveraging campaigns have also

restricted access to credit.

     Jia believes now is the time to lower employers' social insurance

contributions, arguing tax cuts should focus on smaller companies.

     Total social insurance payments by China's employers and employees amount

to 39.5% of payrolls, a higher rate than in many other countries. In 2014, the

average OECD rate was 29%, according to the China Social Security Journal.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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