State Council issues work plan on reducing costs of real-economy enterprise

Xinhua Finance

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The journalist learnt that the State Council has issued the notice of Work Plan on Reducing Costs of Enterprises in the Real Economy Sector (hereinafter referred to as the “plan”).

The plan proposes that China should strive to achieve preliminary effect in reducing costs of enterprises in the real economy sector within one to two years, and enable such enterprises to reasonably lower the comprehensive expenses and significantly enhance the profitability. Firstly, reasonably ease tax and fee burden. Fully roll out the pilot of replacing business tax with value-added tax (VAT), realizing tax cut of more than 500 billion yuan annually. Clean up and regulate government charges and administrative charges related to enterprises. Secondly, effectively reduce financing costs. Gradually lower interest burden of enterprise loan and bond, and reasonably reduce the proportion of intermediate financing costs in enterprises’ financial costs. Thirdly, markedly decrease transaction costs resulting from the system. Further streamline administration and institute decentralization, impose proper regulation on the market and optimize comprehensive service reform measures, and improve business environment, to facilitate the establishment of enterprises and production and management. Significantly simplify intermediary services before governmental review and approval, and improve government and social intermediary organizations’ service ability. Fourthly, reasonably control the labor cost inflation. Maintain reasonable wage growth, and reduce the proportion of enterprises’ social security insurance and housing provident fund contribution in the total salary. Fifthly, further lower energy costs. Markedly improve the marketization level of the pricing mechanism of power and gas consumption of enterprises, and reasonably reduce the price of commercial electricity and gas consumption. Sixthly, significantly reduce the logistic costs. Realize the percentage of total social logistics costs in the total amount of social logistics to decrease by about 0.5 percentage points from the current 4.9 percent, and the industrial and commercial enterprise logistics cost to decline around 1 percentage point from 8.3 percent.

The plan proposes to reduce tax and fee burden of enterprises reasonably. Fully roll out the plan of replacing business tax with VAT, to ensure tax burden of all industries will decrease, rather than increase; implement the preferential policy of R&D costs deduction, revise and improve the preferential tax directory on energy conservation and environmental protection; expand the exemption range of administrative charges, clean and regulate charges related to enterprises; cancel and diminish a number of government charge, expand the exemption range for small and micro enterprises (SMEs).

The plan emphasizes to effectively reduce enterprises’ financing costs. Maintain reasonable and abundant liquidity, create appropriate monetary and financial environment; reduce the financing costs in the intermediate link, strengthen financing guarantee; perfect assessment system and supervision index of commercial banks, make greater efforts in disposing non-performing assets, support debt-for-equity swap between real-economy enterprises with potential; steadily promote the establishment of private banks, develop medium and small financial institutions; strive to develop equity financing, reasonably expand the scale of the bond market; guide enterprises to make the most of low cost money overseas, to improve the proportion of settlement in local currency in cross-border trading.

The plan also proposes to reduce transaction costs resulting from the system, reasonably reduce labor cost, further lower energy consumption and land use costs, significantly reduce logistics costs, improve the efficiency of capital turnover, encourage and guide enterprises to tap internal potentialities, implement supporting measures of cost reduction work, and establish and improve the mechanism for the advancement of cost reduction work.

The plan also calls for the acceleration of reform in the energy sector and lifting restrictions on prices in competitive links. Speed up market-based reform in the electricity, oil and gas sectors. Perfect the grid-connection mechanism for new energy such as photovoltaic and wind power. Basically open competitive areas and relax price control in certain links by 2017. Accelerate the introduction of reform pilots on power transmission and distribution price. Actively roll out direct power transaction, open wider the scope of participants, orderly cut the power generation and utilization plan, and expand the proportion of electricity quantity traded through market-oriented channels.

The plan pointed out to reduce the proportion of enterprises’ social security contributions, and adopt comprehensive measures to supplement cash flow gap. Create conditions for enterprises to reduce the proportion of social security contributions: comprehensively adopt and implement gradual process to postpone retirement age, conduct pension fund investment operation and appropriate part of the state-owned capital to supplement social security fund, and allow local areas to raise fund by ways of auction and renting government and public resources and assets. In addition, perfect the housing provident fund system, regulate and properly reduce the proportion of enterprises’ housing provident fund contribution in stages. Made adjustment to the proportion of housing provident fund contributions of more than 12 percent, and require the proportion to be kept below this level. In the coming two years started from May 1, 2016, each province (district, municipality) should properly reduce the proportion of housing provident fund contributions in stages according to local realities.

“It is in line with specific policies of cost reduction in the supply-side reform,” Huang Qunhui, head of institute of industrial economics of the Chinese Academy of Social Sciences, indicated in an interview with the Shanghai Securities News. “As various policies are implemented, the costs of industrial enterprises are expected to further decline, and corporate profits are expected to continue to improve.”

The journalist also noticed that plans on the transformation and upgrading, cost reduction and efficiency improvement of 10 industries are expected to roll out in succession in the future, including the coal, petrifaction, non-ferrous metals, constructions material, machinery, automobile, electronic information, consumer goods and logistics industries.

But experts warned that during the process of promoting cost reduction, problems of de-capacity should not be ignored. “While the costs enterprises reduced and the profits improved, the pressure on de-capacity might increase,” said Huang.

(APD/XH FINANCE)