Two Sessions 2016: Structural reforms – technology boost and Tax cuts 

As the two sessions met, there are concrete signs of policies that are being formalized for the future direction of Chinese economy. The National committee (CPPCC) met to discuss the future of Chinese growth. Some formal goals were outlined at the outset. To communicate the economic future of China was one of them. Wang Guoqing, the spokesperson highlighted the need to raise tough questions, which will give the world an idea about the true economic conditions prevailing, and will help in dispelling myths about Chinese growth. As I wrote previously, it will be a session to underscore policies to highlight growth potentials, as that is the prime concern of Chinese policy makers now. Addressing the 6.9 percent growth, chairman Yu Zhengsheng mentioned that while it is still more than the entire world, except India perhaps, it is imperative that growth is stimulated and President Xi Jinping said that annual growth of at least 6.5 percent would be required to reach China’s goal to double its 2010 GDP and per capita income by 2020.

Some thought provoking proposals were debated and discussed, like using PV on rooftops, as a means to poverty alleviation. The idea was from Hanergy’s chairman Li Hejun, who said that it is the most potent way for areas without stable power supplies, or remote areas, and it is in line with the poverty eradication plan of the 13th five year plan. Another aspect that was focused was the promotion of a green shared development concept. This coordinated approach and green growth has been the focus for a few years now, considering China’s attempt at pollution control and develop clean energy.

However, two concepts struck me as the key of this year’s two sessions.

The first one is the call for technology as a sector to be developed more rapidly. That’s in line with one small news that caught my eye was the plan to build up a drone manufacturing center in the East of China, with a partnership of China Academy of Aerospace Aerodynamics. As China is the world’s leading consumer drone maker, this is an interesting focus and is in line with the recent report on China’s focus on technology as a rapidly rising job sector boosting growth and development. The new five year plan also highlighted this. With an aim to boost Research and development from 2.1 percent during the 2011 to 2015 period to 2.5 percent from 2016 to 2020, China aims to be the world leader in advanced industries like chip materials, aviation equipment and satellites. In a move that is aimed at controlling and harnessing the power of the internet, the plan aims at increasing of control capabilities of cyberspace as well as set up a new network security system.

The second more important thing was a proposal of tax cuts as an engine to rev up growth. The proposal, a standard of supply side reforms practiced around the world, came from Li Dongsheng, who proposed a cut of VAT from 17 percent to 12 percent. That is a way, to boost domestic demand. He also said that there should be an end to maintenance and construction tax as well as education tax, which puts pressure on industries and stops them from being competitive.

This is perhaps the key highlight and which I wholeheartedly agree with, considering the focus on structural reforms and supply side reforms in China. First of all, tax cuts boost economy, and the evidence is well noted. Tax cuts increase the creation of wealth, and boost employers and small business. Imagine a society, where every small business can hire one extra person, due to the savings they get from tax cuts. Unlike other economic proposals, tax cuts also have a short time effect on growth. Alongside spending programs to boost growth, which takes time, tax cuts provide short term flexibility. For people and society which is trying to boost consumption, tax cuts are the first way to start. By that equation, the deeper the tax cuts, the greater the stimulus.

Ofcourse there are other issues highlighted. Like the Belt and Road initiative, where an urgency for a Bangladesh-China-India-Myanmar economic corridors were emphasized. Relaxing of  restrictions in service sector for foreign capital, widen market access in banking and securities, encouraging FDI for manufacturing and high-tech industries and energy saving were also discussed.DemBernie

But the key is still the tax reforms, and if they can be done properly in China, they should be a policy to emulate, in not just countries like Venezuela and Cuba and Brazil or Greece, but also US and EU, which are turning increasingly protectionist.

Jeremy Corbyn and Bernie Sanders should take note.


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