Premier Li Keqiang Meets the Press
The Second Session of the 13th National People’s Congress held a press conference at the Great Hall of the People on 15 March 2019. Premier Li Keqiang met with Chinese and foreign reporters and answered their questions at the invitation of Spokesperson Mr. Zhang Yesui.
Reuters: Last year, China took a number of measures to ease monetary conditions. China also cut taxes and fees. This year China is promising more monetary easing, more tax cuts and more infrastructure spending. Are China’s economic problems bigger than previously thought? And if the economic slowdown doesn’t stop, would China consider taking more aggressive measures such as lifting property curbs and cutting benchmark interest rates?
Premier Li: You went straight to the point in your question and I will not beat about the bush. It is true that China’s economy has encountered new downward pressure against a larger backdrop of slower global economic growth. In the past month or so, several major international organizations have adjusted downward their forecast for global growth this year. We have adjusted downward, as appropriate, our projected economic growth target for 2019, and set it at a target range. This is compatible with the GDP growth rate we achieved last year. It is also consistent with our determination to prevent major economic indicators from sliding out of the proper range. By this way, we have sent a message of stability to the market.
Last year, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core and guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, people across China made united efforts to advance the supply-side structural reforms, and we achieved a 6.6 percent GDP growth, which was no mean feat. Against the backdrop of growing trade protectionism in the international environment, China’s GDP aggregate reached 90 trillion RMB yuan. Our projected target for GDP growth this year is 6-6.5 percent. It will be a growth on top of a very large base figure. Keeping steady growth of China’s economy in itself is important progress.
We must take strong measures to cope with the current downward economic pressure. One possible option is to resort to quantitative easing, including excessive money supply and a much higher deficit-to-GDP ratio, flooding the economy with liquidity. Such an indiscriminate and expedient approach might work in the short run, but may also lead to future problems. Hence, it is not a viable option. Our choice is to energize market players to counter the downward pressure. We encountered economic downturn in the past several years, and the measures we took were aimed at boosting the vitality of the market, which generated stronger dynamism for development.
China now has over 100 million market entities. When their vitality is fully unleashed, the energies that could be created would be incalculable. We must keep our policies stable and ensure their continuity. We will continue to cut taxes and fees, streamline administration, foster new drivers of growth, broaden market access and level the playing field for all market players. In this way, we will be able to lift the curbs on the market, free up space for companies and resolve concerns for our people. We will generate tremendous creativity in this process. And this will also put us in a strong position to keep major economic indicators within a proper range and achieve high-quality development.
We also need to take strong measures to cope with growing uncertainties that we face this year. We have policies in reserve for that purpose. For example, we raised the deficit ratio for this year by 0.2 percentage point to 2.8 percent, which is below the international warning line of 3 percent. In addition, we can also resort to quantitative or pricing tools like required reserve ratios and interest rates. We are not going for monetary easing, but trying to provide effective support to the real economy. Facing new circumstances, we will stay firmly grounded in China’s realities and take a long-term view. We will do our best to keep China’s economic growth stable and maintain the sound momentum of the economic development for the long run. China’s economy will remain an anchor of stability for the global economy.
Cai Xin: The Chinese government took a series of steps to reduce taxes and fees. However, some business people still feel that the tax burden on companies is quite heavy. This year the government plans to implement deeper tax and fee cuts. I would like to ask if you think real benefits can be truly delivered to companies, and is our country’s public finance sustainable?
Premier Li: In the past several years, we worked to replace business tax with value-added tax. For the past three years, we cut taxes by three trillion yuan, or one trillion on an average annual basis. This is fairly large-scale tax reduction. This year we will implement larger-scale tax and fee cuts. We will make reductions in the VAT and employers’ contributions to the basic pension insurance scheme. This will deliver a dividend of as much as two trillion yuan to companies. It is an important measure for countering the downward pressure.
This is also a fair and efficient policy option. The same rules will be enforced and companies under all types of ownership will stand to benefit as equals. The policy will reach all market players directly. The plan is to cut VAT rates starting from 1 April, and the social insurance contribution rate from 1 May. No other way may work as fairly and efficiently as this one for companies.
Our larger-scale tax and fee cuts are a very important reform measure and a crucial decision. Before we took this decision, we did thorough calculations. In the past, there were several different plans under consideration. For example, one of the plans was to cut the VAT rates by just one percentage point each year in the following several years. But that may not bring as many benefits to companies as the current plan. Under the current plan, the VAT rate for the manufacturing sector will be cut by three percentage points. The manufacturing sector accounts for close to 60 percent of all VAT. For construction and related sectors, the VAT rate will be cut by one percent point. For other industries, we will also work to ensure that the tax burden on companies will only go down, not up. Due to the setup of the tax code, with fewer deductions, the tax payments of some sectors may somewhat increase. To address this problem, we will make further tax deductions. In this process, the tax burden on all micro, small and medium-sized companies will be significantly eased. All in all, as I said before, taxes levied on companies will only come down instead of going up. Moreover, employers’ contributions to the basic pension insurance scheme will be cut from 20 percent to 16 percent.
Cutting taxes means smaller fiscal revenues. This year, our fiscal spending will grow in tandem with the GDP growth rate. We also need to ensure that government spending in key areas related to people’s lives and in fighting the three critical battles will increase. Then it begs the question: where does the money come from? Only increasing the budget deficit ratio by 0.2 percent point is not enough to make up for the shortfall. The answer is: the government will tighten its belt and cut back on its general expenditures. At the same time, certain state-owned financial institutions and enterprises directly under the central government will be asked to turn in a larger share of their profits to the state coffers. The central government will also take back those fiscal funds that have long stayed unused. Through these means, we have put together one trillion yuan. Local governments also need to do their homework and contribute, but for localities in the central and western regions, transfer payments from the central government will be made. Digging into the government’s own revenue stock for slashing taxes and fees would be like the government turning the blade of a knife to itself, which requires significant self-sacrifice. That is why I said this is a key reform that requires exceptional courage and determination.
You asked if our public finance is sustainable. Let me tell you that the government has done its due diligence. We are going to cut VAT rates for the manufacturing and other basic sectors. And we are going to make things much easier for small and medium-sized companies, the largest providers of jobs in our country. They will see their taxes meaningfully reduced. This will create a more enabling environment for companies, and also help to expand our tax sources. When we started with the VAT reform several years ago, government revenue also declined. However, it didn’t take long for it to increase again, as the tax base expanded. This is also a reform that will make adjustments to the structure of our national income distribution. By expanding the share of companies therein, we will create more jobs and put more money in our people’s pockets. To do this, the government must live on a tight budget, and let companies benefit more. We must dig into the government’s own pockets, even if this involves offending people. This is actually helpful for keeping our public finance sustainable. As a matter of fact, our ability to keep China’s public finance sustainable may be called into question if the above measures are not taken. Such measures are not taking an overdraft on our future, but nurturing a better tomorrow.
So, these heavyweight policies and measures are all set, relevant departments and governments at all levels must fully deliver those policies and measures. There must be no lip service. We will let market players test their actual effects and there must be no arbitrary charges levied in disguised forms. Our end goal is to deliver concrete benefits to companies and market entities.
The Dong-A Ilbo: The Hanoi summit between the DPRK and the United States broke down and after that there are analyses arguing that there is a possibility for the DPRK preparing for resuming rocket launch. And there are still uncertainties on the Korean Peninsula situation. How does the Chinese side see the kind of situation on the Peninsula? Another question is, China has stayed in strategic communication and exchanged high-level visits with the DPRK and has been promoting dialogue between the DPRK and the United States and working to ease differences between the two parties. What constructive role is China playing in this respect?
Premier Li: The Korean Peninsula issue is a long-standing and complicated one. It cannot be resolved overnight. Much attention has been paid to the Hanoi summit between the DPRK and the United States. Following the summit, both sides expressed readiness to stay engaged with each other, and having such kind of engagement is better than no contact at all. I believe it is important for all parties concerned to stay patient, seize opportunities and the positive factors that have emerged, and promote dialogue, especially dialogue between the DPRK and the United States, to move toward outcomes that we all would like to see. China is committed to a denuclearized Korean Peninsula. We hope there will be peace and stability there. And this has been our consistent position. A proper settlement of the Peninsula issue is in the interest of both the North and the South. It is also in the regional and global interest.
China News Service: The Chinese government has been taking measures to improve living standards over the years. However, there are still complaints about some issues concerning quality of life. Next year, we will complete the building of a moderately prosperous society in all respects. So, in addition to poverty alleviation, what concrete progress can we look forward to in all these livelihood areas and what plan does the government have to improve people’s well-being?
Premier Li: You asked a fairly big question. Any issue related to people’s lives is of paramount importance and there are still a lot of things in this respect the government must do. We will continue to improve people’s well-being in the process of developing the Chinese economy. We must put our focus on these key areas and major difficulties faced by our people. A big data survey suggests that issues related to aged and child care are still commonly felt difficulties for our people and this must draw closer attention from the government.
The number of senior citizens at the age of 60 or above in China has reached 250 million, the number of those at or above 65, 170 million, and there are up to 100 million children in China below six years old. Services targeting these populations are still lacking, and they affect most of the Chinese families. The difficulty of insufficient child care services is particularly acute after the implementation of the two-child policy. When it comes to aged care facilities, on average, there are only three beds for every 100 senior citizens. Some surveys suggest that in big cities, one would have to wait until 90 years old before he or she can get a place in a nursing home. The increase of such facilities is lagging behind the growing needs for them.
How does the government plan to address this acute problem? In my local inspection trips, I have seen that some good experience has been gained in this respect, that is, to vigorously develop community-based providers of such services. If there can be accessible, quality services that are safe, reliable, and beneficial to all, they will certainly be very popular among the targeted populations. In this respect, the government needs to develop innovative mechanisms to better match market supply with our people’s demand. The government also needs to provide policy support. For example, we may provide public rental housing units for free to private operators as venues of facilities for providing assisted meal, assisted mobility, day care, rehabilitation, and even open senior colleges. The government may also provide tax exemption or tax-free treatment for these service providers in terms of their expenses on water, electricity and natural gas. These entities are all working together with the government to address our people’s actual needs. The main job of community-level officials and competent departments is to ensure fair market access and enhance oversight so that these services will be both safe and reliable, and those who break the rules will be driven out of the market. In this way, we will be able to keep our senior citizens, our children and all families reassured.
When our senior citizens have a decent life in their retirement and our children a carefree childhood, all families will lead a happier life and our young and middle-aged people will have greater energy to tap into their entrepreneurship. I do recognize that there are still a great deal of things the government should do in areas related to people’s lives. We will do our level best within the realms of possibility to tackle the key concerns and difficulties that our people face.