MNI EXCLUSIVE: Little Scope For More China Tax Cuts: Advisors

By Wanxia Lin

     BEIJING (MNI) - China has little room for further cuts in taxes or fees

next year after about CNY2 trillion in reductions in 2019, government advisors

told MNI, calling instead for reforms to social regulations to help ease the

movement of migrant workers or further monetary policy easing to stimulate

demand.

     "The scale of tax and fee cuts has been quite large this year, and there

has to be a limit, as the government has to sustain and provide public goods,"

said Liu Shijin, a member of the People's Bank of China's monetary policy

committee. By the end of October, China had cut taxes and fees by CNY1.78

trillion this year, State Taxation Administration data showed. The full-year

total could reach CNY2 trillion.

     China needs to boost potential growth by expanding the middle class and

increasing consumption, via measures such as reforms to allow workers greater

freedom to move between rural and urban areas, Liu said.

     GDP growth should stay above 6% this year and next, he said, putting a

floor under declining industrial prices, before the economy slows to a 5-6% rate

of expansion from 2021 onwards.

     Liu's view on the limited scope for tax cuts was shared by Zhang Yongjun,

deputy chief economist at the China Centre for International Economic Exchange,

who said further reductions could push the government's fiscal deficit above its

limit of 3% of GDP.

     But Zhang saw more room for easier monetary policy. The PBOC should cut

banks' reserve requirement ratios, increase open market operations, and guide

down lending rates, he suggested, calling for the central bank to act as soon as

possible rather than wait for a reduction in inflation, which hit the

government's 3% ceiling in September. The acceleration in prices was prompted by

the effects of a swine flu outbreak, which has sapped pork supply, said Zhang,

adding that the PBOC may still be cautious about the scale and pace of easing.

     --CONSUMPTION BOOST

     Like Liu, Zhang also called for measures to boost consumption, noting that

investment in the Chinese economy was suffering from diminishing marginal

returns. Combined with a lack of funding, the falling profitability of new

projects has hindered investment growth, he said.

     Industrial profits further fell 5.3% y/y in September, extending August's

2% loss and the worst monthly figure in more than four years. China's statistics

authority attributed the drop to declining ex-factory prices for industrial

products and a slowdown in sales.

     The fall in profits is unlikely to be reversed in the near term, Zhang

said, as industrial product prices may continue to drop next year amid a global

economic slowdown.

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

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

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