China announces lower growth and tax relief to businesses

China expects growth of between 6 and 6.5 per cent in 2019, lower than last year. In addition, the defense budget grows more slowly, while companies are promised tax cuts.

China’s gross domestic product is expected to increase between 6 and 6.5 percent in 2019, Prime Minister Li Keqiang said when he opened the People’s Congress for a two-week session Tuesday.

At best, Chinese authorities believe that growth will be 0.1 percentage point lower than last year, which was the weakest since 1990. It was expected in advance that Li would submit a forecast for lower growth than last year.

During the speech, Li said that the economic situation has become more serious and complicated, with more and greater risks.

“We have made a moderate adjustment to our calculation based on a thorough assessment of destabilizing factors and uncertainties affecting economic performance,” Li said in front of 3,000 representatives at the People’s Congress Tuesday.

Less for defense

The People’s Congress is China’s National Assembly, but the decisions are governed by decisions that are actually taken in advance by the country’s Communist Party.

China’s economy has been under strong pressure from the US trade war last year. Since December, the parties have had a break in the “war” for negotiations. The signals from both sides are that it goes against an agreement, but Li did not mention in his speech when one can expect this.

For 2019, the Chinese government is setting a deficit of 2.8 per cent, which is 0.2 percentage point more than last year.

Less growth also means less space to increase defense resources. This year, the defense budget will increase by 7.5 per cent, which is 0.6 percentage points less than the increase from 2017 to last year.

Tax law and development

Li said during the speech that they should spend more money on technological development, which the Communist Party sees as a path to prosperity and global influence, and more money for education, social services and public infrastructure. Among other things, more money will be spent on the development of artificial intelligence, electric cars, biotechnology and new materials.

Weaker growth has led to the authorities setting up tax cuts. The government will this year cut the corporate tax and employer’s tax by 2 trillion yuan. This is equivalent to around NOK 2.6 trillion with today’s price.

During the opening speech, Li said foreign and local businesses would be “treated equally”. It is expected that the representatives of the People’s Congress will approve a number of laws, including one on foreign investment that can satisfy some of President Donald Trump’s demands in the economic negotiations.

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