China Enterprise Confederation recently released the Outlook on Trend of Development of Chinese Enterprises in 2017 (hereinafter referred to as the Outlook), which indicated that, last year, costs of enterprises were reduced by RMB1.5 trillion through a variety of measures adopted by governments at different levels. More remarkable effect of the alleviation of burdens on enterprises can be expected in 2017.

 

Costs of enterprises reduced by RMB1.5 trillion in 2016

 

In accordance with the analysis under the Outlook, to control the continuous increase of costs of enterprises and further promote the development of bricks-and-mortar businesses, last year, the central and local governments introduced a series of measures to reduce the costs. In accordance with the preliminary estimate, by virtue of these measures, the costs of enterprises were totally reduced by about RMB1.5 trillion.

 

Obvious effect of the measures for tax and charge cut has been shown. As an important step for structural tax reduction, the measures to replace business tax with value-added tax contributed to the reduction of enterprises’ tax burdens by more than RMB500 billion in 2016. For cut of charges, after lowering down the premium rate of three of five types of social insurances, the State Council lowered down the premium rate of the social insurances again and the deposit ratio of public accumulation fund by stages in 2016. In accordance with preliminary estimate, these measures can help enterprises reduce burdens by more than RMB100 billion each year. In addition, the central government also cleared up and standardized a number of governmental fund charges and expanded the range for exemption of 18 administrative charges. Moreover, the administrative charges of local governments were also greatly reduced.

 

The electricity price has been reduced for two times. On April 20, 2015 and January 1, 2016, the sale price of electricity for industry and commerce and the general sale price of electricity for industry and commerce were respectively reduced by 0.018/kWh and 0.03/kWh. This helped enterprises reduce electricity cost by about RMB90 billion. Since 2015, the electricity utilization cost of enterprises has been reduced by more than RMB120 billion.

 

Successive reduction of interest has reduced the financial costs of enterprises. Data of the central bank showed that, at the end of 2016, the weighted average interest rate for loans to non-financial enterprises and other sectors was 5.22%, with a year-on-year drop of 0.79 percentage point.

 

The standards on bank service charges have been lowered. In accordance with the Reply of the National Development and Reform Commission on Issues Related to the Service Charge Standards of the Credit Reference Center of the People’s Bank of China, the benchmark service charge for inquiry of enterprises’ credit reports by commercial banks and other related institutions shall be reduced from RMB100/report to RMB60/report. Since September 6, 2016, the pricing mechanism for bank card handling charges has been improved. In accordance with preliminary estimate, the bank card handling costs of various commercial tenants can be totally reduced by about RMB7.4 billion each year. In addition, the bank service costs of commercial tenants in catering and related industries concerning their credit cards and debit cards and their network service costs can be totally reduced by 53% to 63%, while that of commercial tenants in general merchandise and related industries can be reduced by 23% to 39%.

 

The local governments also introduced measures to reduce the costs of enterprises. Guangdong province adopted the Action Plan for Supply Side Structural Reform to Reduce Costs (2016 to 2018). By the end of 2016, it has helped enterprises in Guangdong reduce their costs by about RMB400 billion. Zhejiang province issued the Several Opinions on Further Reduce Enterprises’ Costs and Optimizing Development Environment, which proposes targeted measures for reduction of costs in eight aspects, including taxes, labor cost, energy cost, financing cost, land use cost, logistics cost, foreign trade cost and institutional transaction cost. It has help local enterprises reduce their costs by about RMB100 billion.

 

Overall profitability of enterprises expected to improve continuously

 

“Enhanced alleviation of burdens on enterprises will enable enterprises to make further progress easily. More remarkable effect of the alleviation of burdens on enterprises can be expected in 2017.” Miao Rong, deputy director of the Research Department of China Enterprise Confederation, said that there will still be positive factors for improvement of the profitability of enterprises in 2017 and the effect will be further strengthened, and the overall profitability of enterprises throughout the whole year is expected to improve continuously, despite there are obvious difference between the industries and enterprises in terms of the profitability.

 

The improvement of the profitability should be due to the cut of taxes and charges. In accordance with the analysis under the Outlook, in 2017, existing tax and charge cut measures will be continuously executed, while new reform measures will be adopted. Therefore, the effect of the alleviation of burdens on enterprises throughout the whole year will be more remarkable than that in 2016.

 

The scale of tax cut will not be reduced. In 2017, on the principle of “government austerity for alleviating more burdens on enterprises”, the Chinese government will continue to make great efforts to carry out the tax and charge cut policies. It is predicted the taxes and charges will be reduced by more than RMB700 billion.

 

Charges regarding enterprises will be further reduced. Currently, many local governments have shown their “schedule” and “list of tasks” for further clearing up the charges regarding enterprises. This year, Shandong province cancelled the provincial administrative charges regarding enterprises in an all-around way; Fujian province has clearly lowered the charge standards for testing of instruments  and measuring devices for industrial enterprises and the charges for maintenance of river and sea embankment projects; Hebei province has introduced the Special Action Plan to Reduce Costs and Improve Profits of Logistics Industry, striving to reduce the ratio of total logistics cost to GDP by 1.5 percentage points by 2018 compared with that in 2015.

 

The improvement of the profitability should be also attributed to the deepened supply side structural reform. Miao said that, in 2017, the central government will continue to unswervingly promote overcapacity reduction and extend it from the steel and coal industries to the building material, nonferrous metal and chemical industries. The positive effect of overcapacity reduction should be continuously released. Then the equipment utilization rate of enterprises will be improved steadily; effective supply will have an increase; the market order will be more sound and standardized. The overcapacity reduction will also promote the rising of the prices of products and therefore effectively improve the profitability of enterprises.

 

Source: Translated from Invest Guangzhou, February 14, 2017