Cutting corporate payments will relieve businesses

By Xie Jun Source:Global Times Published: 2020/2/19 21:33:20

File photo: IC


Chinese government's move to cut three kinds of corporate fees will help small and medium-sized companies reduce costs, but it won't bring a significant change to businesses when many of them are taking a hit from the coronavirus outbreak, some enterprise representatives told the Global Times. 

The State Council, China's cabinet, decided on Tuesday that China would scrap or reduce corporate contributions to employee endowment, medical and unemployment insurance for a certain period. 

Companies in Central China's Hubei Province, the epicenter of the epidemic, will be exempted from those fees from February to June. For other provinces and regions, micro-sized, small and medium-sized companies will be exempted from the fees from February to June. The fees are cut by half for large companies from February to April. 

"Usually, such a policy change should not be decided over a State Council executive meeting. It shows China is in a rush and going to all lengths to secure employment and help domestic companies in the epidemic crisis," said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

Chinese companies pay the three fees in proportion to expenditures on employee salaries. Companies in Shanghai usually each month pay around 26 percent of their previous-year salary expenditures for those fees, but the proportion varies in different regions, one Shanghai-based accountant told the Global Times.

However, given the complexities of China's business landscape, the influence of the policy will be felt differently, company representatives said. 

"For us, it would help reduce costs to a certain extent but the help is not decisive for our business operations, because as a micro company of about one dozen employees, we only spend around 10,000 yuan ($1,430) on those three fees every month," said Lv Yong, general manager of Sdarisb, a home and garden goods exporter based in Ningbo, Zhejiang Province. 

He didn't disclose the actual proportion of the fees in his company's monthly expenditure, but said it accounted for a "very tiny" proportion. 

A Yiwu-based artificial flower trade surnamed Fang also said that the expenditure on those fees accounts for a small part of company costs, as more than 80 percent of the company's employees are located overseas. 

"I wouldn't say the fees are a burden for us, but cutting the cost is sure encouraging," Fang told the Global Times.  

Businesspeople like Lv or Fang might only feel the policy's influence in a moderate way, but it would still mean a huge expenditure on the part of the government, which will need to cover the reduced company payments with fiscal expenditure, Dong said. 

"It will increase the burden on China's finance this year, but this is a necessary step when the country's economy is shadowed by the coronavirus outbreak and many companies are waiting to be revive," Dong told the Global Times, adding that China's deficit rate might break the safety line of 3 percent in 2020.

China has already vowed to cut unnecessary spending and asked local governments to tighten their belts while promising it will continue to roll out tax cuts to relieve the burden for companies.

"I think the government tends to adopt 'periodic' fiscal stimulus policies, just like this one, when it cut corporate payments for several months. In this way, companies will be helped but the burden on finance will be in the short run," he said. 

Dong also anticipated that the government is more likely to roll out targeted tax cuts, such as for micro-sized companies, instead of general tax cuts launched in 2019. 

Wang Jinghua, a Yiwu businessman who owns a maternal products factory that employs about 70 workers, said that he has a more urgent need to explore market orders than to cut costs. 

"We need to meet our overseas clients and show them we are fine even with the epidemic. It would be best if the government could organize a delegation where domestic SMEs can fly overseas and talk about business with overseas clients," he told the Global Times. 



Posted in: ECONOMY

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