China: The government continues efforts to stimulate economy
Lewis Lu of KPMG sets out how China has taken a proactive stance to avoid the harsh financial implications of the COVID-19 outbreak.
The spread of COVID-19 since January has had a severe impact on the Chinese economy. In response, the central and local governments have implemented numerous monetary policy, financial aid and tax relief measures to support businesses and citizens. Alongside these, the government has pushed ahead with a number of tariff reductions and economic and legislative reforms.
Tariff exemptions and reductions for imports from the US
Trade frictions in 2019 had seen the US announce ‘additional tariffs’, i.e. supplementary to standard tariff rates on $550 billion worth of Chinese products imported to the US (additional tariffs on $170 billion of these have since been suspended). China had responded with equivalent measures on $185 billion worth of imports from the US to China.
On February 17 2020, the Tariff Commission of the State Council (Tariff Commission) issued Announcement 2, allowing Chinese companies to apply for an exemption from these additional tariffs for some imports from the US from March 2.
Announcement 2 builds on the existing ‘product exclusion process’ established by China; the US has an equivalent process. The announcement expands, to 696 items, the list of goods that can access tariff exemptions, including certain seafoods, soybeans, grapes, corn, and wheat. Furthermore, importing Chinese companies may also apply for tariff exemptions for unlisted goods. The relief is intended to remain in place for a limited period, though the end date has not been specified.
In parallel, the Tariff Commission also reduced the additional tariff rates for certain US imports, i.e. some of the good for which additional tariffs were announced in September 2019. From February 14, the additional tariffs will be reduced from 10% to 5% for 916 goods categories (including seafood, fruit, vegetables, cereals, edible oils, and leather), and from 5% to 2.5% for 801 goods categories (including dairy products, canned food, and mineral products).
These steps have been taken in response to the Phase I trade deal between China and the US. At the same time, the US is also reducing their additional tariffs on certain Chinese goods imported into the US from 15% to 7.5%.
Opening-up of the financial sector
Building on efforts in 2019, China is continuing to relax restrictions on foreign investors in China’s financial services sector. Recently, Chinese government authorities, including the People’s Bank of China, the State Administration of Foreign Exchange and the Shanghai government, set out 30 measures to foster the further development of Shanghai as an international financial centre, including to:
Allow foreign institutional investors and large banks to set up joint ventures for wealth management in Shanghai, on a trial basis;
Allow foreign institutional investors to set up, or acquire equity control of, securities companies and fund management companies in Shanghai;
Facilitate the establishment of the first wholly foreign-owned life insurance company in Shanghai (Prior to January 2020, the nationwide limitation on foreign equity ownership in life insurance company was 51% of total equity);
Allow foreign financial institutional investors to set up pension fund management companies in Shanghai. Applications will be approved on a case-by-case basis;
Encourage qualified foreign non-financial groups to set up financial holding companies in Shanghai; and
Encourage multinational companies to set up global or regional headquarters (such as group treasury centres) in Shanghai; where a group treasury centre is set up in Shanghai, it will be allowed to trade in the interbank foreign exchange market.
Tax legislation efforts gather speed
Alongside the above, China is stepping up its efforts to place existing tax regulations on a statutory basis, through the passing of tax laws by the National People’s Congress (i.e. Parliament). This should give taxpayers greater certainty, and allow for more tax matters to be adjudicated upon by the Chinese courts.
Regulations for taxes such as vehicle purchase tax and resource tax have already been transformed into laws in 2019 (the Resource Tax Law will come into effect on September 1 2020). In a recent legislation work plan issued by the Ministry of Finance, completion of the drafting of the VAT Law, the Consumption Tax Law and Customs Duty Law are targeted by the end of 2020.
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