China’s production base cuts business costs as manufacturing weakens

By Shen Weiduo Source:Global Times Published: 2018/9/12 20:53:40

Moves could provide national example, advance real economy: experts

Employees at a smartphone manufacturing plant in Dongguan, South China's Guangdong Province in April 2017 Photo: VCG

South China's Guangdong Province, the country's manufacturing hub, has announced measures to cut costs for companies, a move that experts said is worthy of being replicated on a broader range around the country to boost the real economy.

According to a statement on the website of the Guangdong government on Monday, corporate taxes in the province will be cut. Moves will also be taken to reduce land, electricity, transport and financing costs, as well as payments for employees' social security. Local authorities estimate the policy package would reduce costs for businesses in the region by more than 200 billion yuan ($29.1billion) by 2020.

"The policies are a timely and effective step to ease pressure on Pearl River Delta manufacturers, especially small and medium-sized enterprises (SMEs), which are suffering the most amid the escalating China-US trade dispute and downward pressure in the domestic economy," Xu Gao, chief economist at China Everbright Securities Asset Management, told the Global Times on Wednesday.

Xu noted these initiatives could maintain industrial growth momentum in the long run, the top priority for the Chinese economy.

According to official data, Guangdong's purchasing managers index, a gauge of performance in the manufacturing industry, fell to 49.3 in August, sinking below 50 for the first time since March 2016. A reading above 50 indicates expansion and one below that level signals contraction.

"The data shows an underperformance arising from an unstable external trade environment, escalating China-US trade tensions and a tight domestic macroeconomic policy," Xu said.

Cong Yi, an economics professor at the Tianjin University of Finance and Economics, told the Global Times on Wednesday that the declines should be viewed as the teething pains of structural reform that China has been pursuing. The major problems in the Chinese economy are more internal, and any external impact could be considered a less important factor. Cong said this was demonstrated in China's August export figures.

Exports to the US rose to $44.4 billion in August, a year-on-year increase of 13.4 percent, according to customs data.

Cong cautioned that the moves taken by Guangdong might be not that easy to be copied through the nation, since Guangdong's fiscal position is relatively strong compared with its provincial-level counterparts.

Xu agreed, noting that although the policies are an effective way to boost the local economy and support SMEs, and worth being expanded around the country, specific policies should be tailored to different local conditions.

China should let more capital flow to SMEs to stabilize the economy, Xu noted.

Guangdong has also announced policies to attract more foreign companies, which Xu said was a wise move to stimulate the economy.

For instance, US-based energy giant ExxonMobil plans to build a $10 billion petrochemical complex in Huizhou, a city in southeast Guangdong, according to media reports.

"The policy also shows that the government, from the central to the local level, is ramping up efforts to boost the real economy and push forward structural reform," Cong said. "China is moving toward the right direction, and should continue to underscore its reform resolution, despite some unavoidable pain."

Newspaper headline: Guangdong cuts business costs to boost manufacturing sector


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