China Musts: Align with US on Trade and Stimulate Sinking Economy

China Musts: Align with US on Trade and Stimulate Sinking Economy

China will step up fiscal spending this year to support its economy, focusing on further cuts in taxes and fees for small firms, finance ministry officials said Wednesday.

Mounting US trade tariff pressure on the world’s 2nd-biggest economy pushed growth last year to its lowest since Y 1990 even as Beijing stepped up stimulus measures and spurred banks to lend more.

The government may unveil more fiscal stimulus during the annual parliamentary meeting in March, including bigger tax cuts and more spending on infrastructure projects, economists say.

China’s fiscal spending rose 8.7% to US$3.3-T in Y 2018, while revenue increased 6.2% to RMB Yuan 18.3-T, said Li Dawei, an official at the finance ministry.

China achieved its Y 2018 fiscal revenue target despite extensive tax cuts last year, Li added.

Beijing delivered about RMB Yuan 1.3-T of cuts in taxes and fees in Y 2018.

Finance Minister Liu Kun said this month that China will further lower taxes and fees this year. The government is also studying a plan to reduce social security fees to lighten the burden on small companies.

Policy insiders also expect Beijing to cut the VAT (value-added tax), which ranges from 6% for the services sector to 16% for manufacturers.

Policymakers’ pledge of more aggressive tax reductions in Y 2019 has fanned expectations that the annual budget deficit ratio could be lifted to 3% of GDP.

The government had lowered the Y 2018 deficit target to 2.6% of GDP from 3% the prior year, the 1st cut since Y 2012.

The finance officials, speaking to reporters Wednesday, did not report the size of the Y 2018 budget deficit.

China will “appropriately” step up fiscal spending in Y 2019, said ministry official Hao Lei.

China must be on guard against “black swan” risks while fending off “gray rhino” events, President Xi said Monday.

A “black swan” event refers to an unforeseen occurrence that typically has extreme consequences, while a “gray rhino” is a highly obvious yet ignored threat.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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