China must ease small firms’ tax burden amid ‘downward pressure’ on the economy, says Premier Li Keqiang

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Premier Li Keqiang has said China needs to lower fees and taxes for businesses, particularly struggling small and medium-sized enterprises (SMEs), to alleviate fresh challenges facing the economy.

“The current economy is facing new downward pressure, and more than 100 million market players are the source of confidence and resilience to stabilise economic fundamentals,” Li said during a meeting on Tuesday with China’s top market regulator, the State Administration for Market Regulation.

“It is necessary to formulate new combined tax and fee reduction policies in response to the difficulties of market entities, especially small, medium and microenterprises and individual proprietorships, and continue to guide financial institutions to make reasonable profit transfers to the real economy.”

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Li did not elaborate on the new challenges facing businesses, but in the past Chinese officials have used “downward pressure” as a byword for a slowing economy.

China’s gross domestic product grew by 4.9 per cent in the third quarter from a year ago, down from a 7.9 per gain in the second quarter and the 18.3 per cent expansion in the first, according to the National Bureau of Statistics.

While rapid growth in the first half can partially be attributed to the low base of last year, when the country was hit by the initial shock of the Covid-19 outbreak, the slowdown in the last quarter has come at the hands of a host of new challenges.

Sporadic Delta variant outbreaks, Beijing’s regulatory crackdown on various sectors, floods, the Evergrande crisis, as well as a power crunch that has affected more than half of the country since mid September, have all weighed on growth.

China’s SMEs, which account for 80 per cent of urban employment in the country, have also been struggling with lockdowns, high raw material prices and soaring freight costs. Some of them have found production is no longer economically viable.

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Elsewhere on Tuesday, another key member of China’s leadership, Vice-Premier Han Zheng, reiterated the need for local authorities to shore up energy supply this winter and spring.

Power rationing has disrupted production across the country since September, ratcheting up pressure on the economy, and forcing some smaller businesses to slash outputs and jobs

“It is necessary to increase the supply of thermal coal and natural gas through multiple channels … and stabilise prices,” Han said during a visit to the State Grid Corporation of China, the state-owned electric utility provider, in Beijing.

He said the government would “strengthen the regulation of coal prices” and “and accelerate the study of market-based price” mechanisms.

China announced last month it would liberalise pricing for coal-fired power in an attempt to tackle the electricity crisis.

Li said the central government would also help boost activity in the industrial economy.

The official manufacturing purchasing managers’ index, a survey measuring sentiment among factory owners in the world’s second-largest economy, fell to 49.2 in October, the National Bureau of Statistics said on Sunday, indicating the second consecutive month factory activity contracted.

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