BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/27

Although Chinese economic growth is slowing, the government has announced only very modest new measures to support the growth recently. To counteract a sharp slowdown in car sales, the government eliminated restrictions on car purchases (excluding gasoline & diesel vehicles). No new subsidies were granted, however. Instead, the NDRC encouraged provincial governments to support car and home appliance sales if they happen to have extra money available.

In line with plans announced in winter, China has relaxed its fiscal policy throughout the spring. In April, VAT for manufacturing firms was lowed from 16 % to 13 %, and VAT on construction and transport from 10 % to 9 %. All firms will have greater possibilities to make deductions on their VAT, and firms with monthly sales less than 100,000 yuan (12,900 euros) are exempted entirely from the VAT requirement (earlier the ceiling was 30,000 yuan). At the beginning of May, mandatory corporate contributions for pension, unemployment and accident insurance were lowered. Income taxes, already reduced last autumn, were also granted more exemptions from the start of January.

The tax cuts have led to a clear slowdown in the growth of government budget revenues. Even so, budget revenues and spending for the January-May period were on track to meet this year’s budget released in March.

To encourage investment in infrastructure projects, local governments have been allowed to issue more special purpose bonds than earlier. Thanks to this policy, a growth in public-sector investment has picked up somewhat. However, real growth in fixed asset investment overall (including private investment) has remained modest, at around 2 % a year.

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