China’s premier warned Tuesday that the country faces a “tough struggle” as he unveiled tax cuts to prop up a stuttering economy while increasing military spending to nearly $180 billion.
The slowdown and US trade war have become major challenges for President Xi Jinping, a year after becoming the country’s most powerful leader since Mao Zedong with the abolition of term limits and etching of his name into the constitution.
Premier Li Keqiang told the opening session of China’s annual National People’s Congress that the government is targeting growth of 6.0-6.5 percent this year for the world’s second-largest economy, lowering its range from 2018.
Nearly 3,000 delegates from across the country gathered under tight security, with legislation aimed at improving conditions for foreign investors topping the agenda of the two-week session.
“In pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges… that are greater in number and size,” Li said in his speech.
“We must be fully prepared for a tough struggle,” he said.
The government had set a target of around 6.5 percent in 2018 and eventually recorded official growth of 6.6 percent — the slowest pace in nearly three decades. Three-quarters of provinces have already lowered their annual growth targets this year.
“We have made a moderate adjustment to our projection on the basis of a thorough assessment of destabilising factors and uncertainties affecting the economic performance,” Li said.
To combat slowing growth, policymakers have said they will lower taxes, reduce fees and streamline red tape.
China will cut company taxes and employer social insurance contributions paid on behalf of workers by nearly 2 trillion yuan ($298 billion), Li said.
The value-added tax for manufacturers will be lowered to 13 percent from 16 percent and drop one percent for transportation and construction industries.
Beijing will also lift spending, with China’s targeted fiscal deficit set to increase to 2.8 percent of GDP, from 2.6 percent last year.
Fiscal policy will be “proactive”, while monetary policy will remain “prudent”, Li said, outlining cuts to the reserve ratios at medium and small banks to unleash more funds into the economy.
To combat problems facing small business, Beijing will raise the VAT threshold to 100,000 yuan in monthly sales, from 30,000 yuan and direct large state banks to lend 30 percent more to small firms this year.
Beijing is determined to achieve above six percent growth for the next two years to “meet its promise” of doubling GDP for the decade ending 2020, said Lu Ting, an analyst at Nomura bank.