MNI INTERVIEW: China Should Consider Tariff Cuts On US Cars

--Advisor Says China Should Listen To U.S. Concerns

--Tax Cuts May Total More Than 2 Trillion Yuan This Year

By Iris Ouyang

     BEIJING (MNI) - China should consider U.S. demands for lower tariffs on

U.S.-made car imports, a fiscal policy advisor for the central and local

governments told MNI, adding that cuts in Chinese taxes and fees could exceed

the already-announced CNY2 trillion this year as Beijing seeks to stimulate its

economy.

     "Further tariff reduction is a trend, it will continue every year ... China

may need to address the U.S. concerns, such as by actively reducing tariffs on

U.S. autos," Jia Kang, chief economist at the China Academy of New Supply-side

Economics, and former head of the Ministry of Finance-managed think tank Chinese

Academy of Fiscal Sciences, said in an interview.

     As bilateral trade talks proceed, China is currently applying a 15% tariff

on U.S. cars, while the U.S. levies 2.5% on Chinese autos.

     "There's a big difference, China may need to address some of the U.S.

concerns," said Jia, who added that the trade dispute between the world's two

biggest economies was a risk to China's 2019 economic performance.

     Jia, also a counsellor of the Ministry of Finance-managed Society of Public

Finance of China, said more tax cuts are possible on top of the "around CNY2

trillion" yuan announced by Premier Li Keqiang earlier in March.

     --MORE TAX CUTS

     "The cuts will only be expanded," he said, without saying where further

reductions could be made but adding that there was little scope for more cuts in

value-added tax this year. "If the implementation is done well, it could be

higher than CNY2 trillion."

     Yet this year's fiscal deficit target of 2.8% of GDP, up from 2.6% in 2018,

leaves sufficient leeway for tackling future contingencies, and will likely

remain untouched barring significant changes in the economy, he said, noting

that the government nonetheless had room for more stimulative policies.

     "Some tools can be more fully used," he noted. "We need to stabilize

expectations and eliminate negative sentiment. By increasing people's social

welfare, companies can invest more boldly and expand, and consumers will be more

willing to spend."

     "When the economy grows at a good pace, there will be more fiscal room to

tackle problems (during economic slowdowns)," Jia said.

     Some government fiscal advisors had earlier told MNI the fiscal deficit

target could be raised in the second half of this year, as occurred in 1998, if

a slowing economy affects job growth.

     Meanwhile, some less developed regions of China, such as in the country's

northeastern rust belt, have not been able to afford to implement the

government's recommended cut in employers' insurance contributions for their

workers to 16% from 20%, despite official encouragement for richer regions to

help them out with transfers, Jia said.

     Plans for a residential property tax, on which legislation is due before

March 2023, will proceed only gradually, he said, with local governments

deciding where to impose the levy and its rate. Proposals for such a tax have

been discussed for decades, but pilot programmes in Shanghai and Chongqing have

met with resistance from householders, who argue that they should not pay

because land is state-owned. The tax is likely to be initially set at a low

level, he said.

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

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

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