China Scales Down Growth Rate, Unveils Tax Cuts

Premier Li Keqiang warned on Tuesday that the country faces a "tough struggle" as he unveiled a lower growth rate estimate and announced tax cuts and other measures.

The 6.0 to 6.5 percent estimate for this year was released in a work report for the opening session of the annual National People's Congress.

"In pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges, foreseeable and otherwise, 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 last year and eventually recorded official growth of 6.6 percent, which was already the slowest pace in nearly three decades.

Independent analysts, however, estimate that the economy's performance was much worse than the official figure. This year, three-quarters of provinces have already lowered their annual growth targets.

To combat the slowing growth, policy makers have said they will lower taxes, reduce fees, and streamline red tape.

Beijing will cut company taxes and employer social insurance contributions paid on behalf of workers by nearly 2 trillion yuan, according to a government report presented to the congress.

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 pick up 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", he said.

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. (AFP)