News ID: 256273
Published: 1228 GMT July 24, 2019

Economist: China’s tax cuts may be able to offset the cost of trade tariffs

Economist: China’s tax cuts may be able to offset the cost of trade tariffs
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Tax cuts could end up supporting economic growth in China, even if Beijing’s trade war with the US doesn’t improve, according to the chief economist of a Chinese investment banking firm.

The US and China have been locked in a tariff battle since early 2018 and both economies have levied sanctions on each other’s imports, CNBC reported.

Earlier this month, China said its second-quarter GDP growth was 6.2 percent, its slowest quarterly rate in 27 years. Still, Liang Hong, chief economist of widely followed China International Capital Corporation said the government has done ‘enough’ to support the economy.

“I think a lot of people forgot the Chinese government, this year, had launched a personal income tax cut (and) a lot of other tax cuts as well,” she told CNBC’s ‘Street Signs’ on Wednesday.

Chinese Premier Li Keqiang announced cuts in taxes worth close to ¥2 trillion ($290.66 billion) in March this year, and the country was set to exceed its tax cut target of ¥1.3 trillion in 2018.

“That has supported domestic demand, particularly consumer demand,” Liang said, pointing to retail sales, which surprised the market with a 9.8 percent increase in June from a year ago. Analysts had expected an 8.3 percent rise.

The effects of the tax cuts are still feeding through the system and will add to confidence, she projected, which will be enough to offset the slowdown caused by US tariffs on Chinese goods.

Most Chinese estimates put the impact of the trade war at 0.5 percent to a “maximum one percent of GDP,” she said.

“But if we look at the tax cuts, that’s more than one percent of GDP. So if we just do a net, that seems to be enough.”

The risk now for China, Liang added, is that the US launches new tariffs on Chinese goods, or that weakness is inadvertently introduced as regulators work to improve the financial system.

She said, “But if we just talk about the tariff and the negative impact of that on trade, we think the tax cut is enough.”

 

 

 

 

   
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Resource: CNBC
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