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News from China

Company taxes, fees are to be trimmed

16th March 2017

China will help enterprises reduce their tax burden and cut fees to help improve their competitiveness, Premier Li Keqiang pledged on Wednesday.

The costs of broadband access, electricity and logistics will be further reduced, with the total cuts in costs and taxes expected to reach 1 trillion yuan ($144.7 billion) this year, Li said at a news conference at the end of this year's two sessions.

Cost reductions for enterprises mean the government needs to "tighten its belt", he said.

"The central government is required to take the lead in reducing government expenses in order to leave room for cutting costs for enterprises," Li said.

He added that China will not reduce imports or retreat from the opening-up process to support domestic enterprises.

Li's comments were in response to complaints of high tax burdens in the private sector.

Ding Mingshan, CEO of China Wallink Holding Group, had anticipated the government lowering taxes of all types on enterprises, given that companies are likely to be more sensitive to costs when encountering economic pressures. Ding also is a member of the National Committee of the Chinese People's Political Consultative Conference.

Zhang Lianqi, also a member of the advisory body, said that while such complaints by companies make sense, the government also needs to strike a balance between lowering costs for market players and ensuring basic and necessary fiscal spending.

Zhang said policies lowering taxes and fees are expected to be rolled out this year to mesh with the nation's need to support the economy's stabilizing trend.

"Policies in the Government Work Report delivered by Premier Li this month will facilitate the speed of improving the current tax system and let the market players feel the real benefits," said Zhang.

China will consolidate four tax rates into three, according to the report. The government also will cancel 35 administrative fees paid by enterprises, according to the report.

There are about 500 administrative fees that enterprises in China may be subject to, according to a report released by the Research Institute for Fiscal Science last year.

Efforts such as simplifying the tax regime will help improve the efficiency of the tax system and reduce problems encountered while collecting taxes, said Jia Kang, director of the China Academy of New Supply-side Economics.

Source: China Daily, March 16, 2017

Propelling manufacturers into the new age

15th March 2017

AS manufacturing slips as a driver of Shanghai’s economy, the city is trying to reinvent the role of its industry by pushing factories to adopt advanced technologies, become more innovative and attract more professional talent.

The government has unveiled plans to become a “national hub for smart manufacturing” by 2020, with 100 model digital factories and 1,000 upgrades in traditional sectors like automobiles, heavy equipment, shipbuilding and aviation.

Industrial output last year in Shanghai accounted for 26 percent of the city’s gross domestic product, down from 26.9 percent last year and nearly 40 percent five years ago.

Filling the gap have been gains in “soft realms” like commerce and services, but “manufacturing should remain the backbone” of the city’s economy, said Tang Huihao, chief economist at the Shanghai Statistics Bureau.

The city that was once a prime industrial center of China is now aiming to meld the Internet age and other new technologies with classic manufacturing to put industry at the vanguard of what the world will need tomorrow.

To nurture 100 digital factories and 1,000 upgrades, the government is taking a page from the strategies of global giants like German-based Siemens and US-based General Electric, Liu Ping, head of the equipment department at the Shanghai Commission of Economy and Information Technology, told Shanghai Daily.

The idea is to create “integrators” as pilot projects in smart manufacturing.

Among those projects is a partnership between Baosteel and Siemens to digitize hot-rolling production, and one between INESA, an instruments producer, and Japanese-based Fujitsu to automate 23 production lines.

“They need both digital technologies and industrial know-how,” Liu said.

Shanghai is ahead of the curve in that it has fewer plants to close among cities nationwide trying to streamline manufacturing, said Chen Mingbo, director of the Shanghai commission.

Many outdated plants have already been phased out in the past decade, reducing over 45 percent of the city’s coal use among coal chemical plants and closing five major blast furnaces.

Chen said the manufacturing landscape may change, but industry will always be a part of Shanghai in its thrust to become a global center of innovation.

Beijing and Shanghai both have proposals to create such centers. Beijing’s plan focuses on technology startup to take industry into the new century; Shanghai relies more on improving production and innovation at existing manufacturing giants.

Most of Shanghai’s major manufacturers are state-owned, comprising about a quarter of the city’s gross domestic product, according to Chen.

Model digital factories and industrial upgrades will come largely from the automobile and shipbuilding sectors — main users of equipment such as machine tools, engines and turbines, Liu said.

Shanghai Electric is a poster company in industrial innovation. It became the world’s largest player in offshore wind power generation last year, utilizing 489 megawatts at full capacity. The result “was largely due to our efforts to digitize wind power operations, helped by Siemens,” said an engineer at the group.

Two years ago, Shanghai Electric received tens of million yuan from the government to start that project.

In the coming five years, Shanghai said it will allocate 10 billion yuan (US$1.4 billion) to help transform technology research in areas such as industrial components and high-end chips. It will also award key industrial projects at least 100 million yuan each, according to the city’s development and reform commission.

The coming years are crucial in industrial upgrading, the commission’s Chen said.

The upgrades will add an estimated 500 billion yuan to industry gross output value. Of the money, 300 billion yuan will come from the upgrades at existing companies.

Upgrades among local producers will become a “major motivation” for manufacturers worldwide to come to Shanghai, said Tom Tan, president for China at US-based car parts maker BorgWarner.

By the end of last year, Shanghai was home to 411 research centers of multinational companies. “That’s not just because Shanghai serves as an access to the enormous Chinese market,” Tan said. “More importantly, the city provides more abundant talent and more advanced companies to work with.”

Twenty years ago, nearly 80 percent of the company’s components had to be imported. Today, nearly 90 percent of them are made locally, Tan said.

“In the next five years we need to accelerate our efforts,” Chen said. “Who would dare risk such a smart opportunity to win the global manufacturing race?”

Source: Shanghai Daily, March 15, 2017

China may reduce quotas on e-cars

14th March 2017

CHINA is considering easing proposed quotas aimed at producing more electric vehicles, as Beijing gets pushback from the automotive industry over the scale and pace of the plans.

If adopted, proposed changes under discussion could see a target of new-energy vehicles making up 8 percent of sales next year pushed to 2019, two auto executives said.

The changes would lower targets from a draft policy released in September requiring 8 percent of automakers’ sales to be battery electric or plug-in hybrid vehicles by 2018, rising to 10 percent in 2019 and 12 percent in 2020.

Any easing of NEV targets would be a pullback by Beijing, which has faced opposition to the planned targets as it looks to drive its domestic carmakers to overtake global rivals in the green vehicle sector.

Automakers and industry bodies have said the targets are too tough and could hurt manufacturers’ interests. New-energy vehicles last year took up just 1.8 percent of sales in the world’s biggest auto market, according to calculations based on official data.

“It’s normal to make revisions as it’s a draft plan,” said An Jin, chairman of Anhui Jianghuai Automobile Group (JAC Motor).

He said he was aware of talks to revise the quota targets, but said nothing was set in stone. “JAC hasn’t been told what revisions might be made to the draft, but I think it is possible the draft will be changed after the discussions,” he said.

“Whether the whole market can hit this quota by 2018 depends a lot on the strength of government policy. If it’s strong then we should be able to surpass the targets,” An said. But “if you consider China’s infrastructure and the transformation of China’s auto sector, then perhaps the pace will have to slow.”

Two executives familiar with the plans said the government was considering options for lowering the requirements.

One idea was to cut the quota need by 2 percent each year, cutting the 2018 requirement to 6 percent, said a China-based government relations official at a major global automaker. It would then be 8 percent in 2019 and 10 percent in 2020.

Another option would be to push back each target by a year, with the 8 percent quota starting from 2019, an executive at a Japanese car maker said.

Both asked not to be named due to the sensitivity of the matter and because the draft was still under consideration.

The overall policy includes quotas for plug-in cars, targets for average fuel economy requirements, and a credit trading system to push green-energy cars while penalizing petrol cars.

Source: Shanghai Daily, March 14, 2017

HK set to gain new growth with Greater Bay Area

13th March 2017

HONG Kong will gain new growth momentum with the emergence of the Guangdong-Hong Kong-Macau Greater Bay Area, an ambitious central government initiative aimed at boosting development of the Cantonese-speaking region in south China, local scholars and economic analysts say.

In his annual government work report, Premier Li Keqiang announced that the government will draw up a plan for the development of a city cluster in the Guangdong-Hong Kong-Macau Greater Bay Area, in a bid to give full play to the distinctive strengths of Hong Kong and Macau, and elevate their positions and roles in the country’s economic development and opening-up.

The idea of building a Greater Bay Area is not new. Most recently, the 13th Five-Year Plan (2016-2020), unveiled last year, pledged to facilitate the construction of the Guangdong-Hong Kong-Macau Greater Bay Area.

The Greater Bay Area is an updated version of the previous regional development initiatives, such as the Pearl River Delta and the Pan-Pearl River Delta, and it transcends regional divisions to highlight economic growth efficiency in the hub as a whole, said Andrew Fung, executive director of Hang Seng Bank.

The Greater Bay Area is a kind of natural, geological existence, which goes beyond administrative divisions, and it provides a vivid image, making it easier for policy-makers to map growth strategies through comparing it with the world’s leading bay areas, such as Los Angeles, New York and Tokyo, said Ma Xufei, head of the Center for Entrepreneurship of the Chinese University of Hong Kong.

The hub will mainly involve Hong Kong, Macau and nine cities in Guangdong, namely Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing.

Analysts believe Hong Kong can seek new growth momentum in the collaborative dynamics in the proposed hub.

Ma believed Shanghai has succeeded as a financial center through integrating with the Yangtze River Delta, a key manufacturing center in east China, linking its financial services with the real economy.

Another key manufacturing center, the Pearl River Delta in south China, is within the reach of Hong Kong, Ma said, explaining that Hong Kong’s manufacturing chain is incomplete and its own market is small, but the weaknesses can be overcome through joining hands with the Pearl River Delta, which boasts a complete manufacturing chain and a large market.

Analysts believe the initiative will enable the cities included to further boost their strengths and complement each other in collaboration.

Hong Kong has advanced financial services and other professional services such as accounting, auditing and project management, while demand for such services is huge in the inland, which is upgrading its manufacturing sector, Ma said.

Hong Kong is endowed with standard market system, mature legal system, advanced infrastructure equipment and relatively low tax rates, which will enable it to remain competitive in the coming years, said Ye Bingnan, an analyst with Bank of China International.

Hong Kong is well placed in the finance and services sectors, Shenzhen is good at innovative technology, and Guangzhou boasts leading colleges and research institutes, Ye said, noting different cities will build on their strengths in collaboration.

Foundation for such a proposed hub is solid.

The region shares similar folk culture and Cantonese dialect, which allows space for cultural and creative industries, said Witman Hung, president of Hong Kong’s Internet Professional Association.

The Hong Kong-Zhuhai-Macau Bridge will cut the driving time remarkably between Hong Kong, Guangzhou, Zhuhai and Macau, and this is an impetus to greater integration of the region in the proposed hub, Hung said.

Source: Shanghai Daily, March 13, 2017

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