Tax and fee policies provide boost to China’s economy

The Chinese government has supported the country’s businesses to the tune of more than 3.4 trillion yuan ($478 billion) in the form of tax refunds and tax and fee cuts this year, according to figures from the State Taxation Administration (to 20 September).

The STA said this boost to the economy consists of 2.21 trillion yuan worth of tax credits refunded to taxpayers, 591.6 billion yuan of tax and fee cuts, and 632.6 billion yuan of deferred tax and fee payments.

The tax breaks and fee incentives have been vital in bailing out businesses in difficulty, according to the China Daily website. It quoted the example of a waste management firm based in Jiangxi province in East China, which had been losing money in the first part of 2022. However, after receiving a tax rebate of 10.48 million yuan in May and an exemption of 160,500 yuan that was refunded to its account, the company’s has returned to profitability

According to the company’s financial chief, Zhang Leshan, the company’s monthly operating costs have dropped by 5.3%. Zhang said now “it is estimated that the company would see a 25% yearly increase in whole-year business revenue”.

A survey by China’s National Bureau of Statistics (NBS) showed that 90% percent of firms that received tax refunds since the policy was implemented believed that their cash flow had improved.

On top of the tax and fee incentives, an executive meeting of China’s State Council recently made the decision to temporarily defer payments of some government-levied charges, to further ease the burden on micro, small and medium-sized enterprises, self-employed households and manufacturing firms.

Li Xuhong, a senior researcher with the Beijing National Accounting Institute, said that the fiscal policies introduced in 2022 are focused on support for key enterprises, such as those in the science-technology sector, to “drip irrigate” organisations experiencing financial difficulties.

The benefit of state-funded aid to businesses, especially to those companies in manufacturing, is reflected in the latest purchasing managers’ index for the manufacturing sector. According to NBS figures, the sector has bounced back into expansion territory – but only just.

The PMI figure for manufacturing was 50.1 in September, above the boom-bust line of 50, and up from 49.4 in August.

Data showed that the confidence of manufacturing companies strengthened in September, with the sub-index for production and operation activity expectation standing at 53.4, up 1.1 points from the previous month.

The NBS’ Fu Linghui said: “The foundations of economic recovery will be further consolidated, as supporting policies continue to take effect.”

Li Qi, a researcher in the consulting department at China-Derivatives Futures, agreed that the stimulus package has supported the recovery in manufacturing sector, adding that the  recovery of the real estate market was also a sign of improving prospects for the economy in Q4 2022.

Li told Securities Daily: “The stimulus for recovery of domestic economy in Q4 includes the expanding consumption demand, increasing investment in construction and manufacturing industries, as well as policy warming up the real estate industry.”

China’s GDP growth is expected to reach about 5% in the fourth quarter of this year, making the whole year’s GDP growth at around 3.5%, according to a report released by the Bank of China at the end of September.


Gas crisis provides opportunities in Europe

Soaring energy costs and the war in Ukraine has boosted demand in Europe for Chinese heating products, and Chinese firms are ramping up production in response.

Demand for Chinese heating products manufactured on the continent, including electric blankets, heat pumps, heaters and hot-water bottles, has surged.

With Europe facing a shortage of gas and rising prices, European consumers have been increasingly sourcing equipment from Chinese manufacturers. Until Russia’s invasion of Ukraine, it was the biggest supplier of natural gas to western European countries.