China's USD300 Billion Cost-Cutting in Real Economy Still Leaves Room for Improvement
Chen Yikan
DATE:  Jul 25 2017
/ SOURCE:  Yicai
China's USD300 Billion Cost-Cutting in Real Economy Still Leaves Room for Improvement China's USD300 Billion Cost-Cutting in Real Economy Still Leaves Room for Improvement

(Yicai Global) July 25 -- The Chinese government has managed to reduce costs for businesses but still has room for further cuts as slowing economic growth leads to reduced incomes and elevated costs.

Data from the National Statistics Bureau shows profits at larger industrial firms in 2015 were 2.3 percent less than the year before, marking the first decline after 20 years of growth. The number of firms making a loss is now on the rise.

Increased labor, financing, property and utility costs are leading to Chinese manufacturers' high outgoings and operating difficulties, said Prof. Feng Qiaobin from the China National School of Administration.

To reduce the burden, the State Council, China's cabinet, issued a tax and expense reduction list last year, lowering the cost of electricity. In August, the cabinet issued a work plan to lower tax and the cost of financing, transactions, labor, energy and logistics to real-economy companies. The plan had a view to raise profits by making slight cuts in the first two years and more reasonable reductions within three.

Reductions last year amounted to nearly CNY1 trillion (USD147 billion), the State Council said. This year, it will place a stronger emphasis on cuts and hopes to slash more than CNY1 trillion in tax and other expenses.

The NBS data showed that last year, for every CNY100 (USD14.8) these larger firms earned, they spent CNY85.52, just CNY0.1 less than a year earlier but marking the first reduction in recent years. Profits at the firms climbed 8.5 percent from the year before, preventing continued negative growth.

Despite the cut, many firms said their costs were still high. Some companies said the national policy on tax and expense reductions lowered this to a certain extent, but other costs, like labor and land, are on the rise. China's five social insurances and housing fund are too much, the enterprises said. They feel costs and taxes are still so high they make it difficult to run manufacturing businesses, and hope the national government will adopt further measures to cut outgoings.

Ma Hongfan, a researcher at the Chinese Academy of Fiscal Sciences, traveled for two years to assess the cost burden of larger companies; he said many of those surveyed had lowered their costs. Based on this, and data from the statistics bureau, real-economy costs seem to be on the decline, but there are still cost-reduction problems that need to be addressed by optimizing policies or deepening reform.

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Keywords:   State Council,Real Economy,Tax,Cost Reduction,MANUFACTURING