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Three major economic tasks challenging China

2012-03-28 10:22:13Source:People′s DailyAuthor:

Since the Reform and Opening-up, China has achieved rapid economic development, but it has also amassed many contradictions and problems, including major urgent economic problems and long-term macro-economic problems. At present, China should pay particular attention to three economic tasks.

The first task is controlling price levels.

Prices of major energy sources continue to stay high, and the upward trends in labor costs and prices of major industrial and consumer goods remain largely unchanged. As the technological level and labor productivity cannot improve greatly in the short term, the increase in companies’ production costs is bound to push up the overall price level. Therefore, the country should attach great importance to ensuring price stability and preventing prices rebound.

The second task is continuing property cooling measures.

The Chinese government’s property cooling measures are paying off as most cities in the country have witnessed home price declines on a month-on-month basis since the beginning of the year. However, the downward trend in home prices lacks a solid foundation, and home prices are still far from a reasonable level. Industry insiders believe that the government is in “confrontation” with real estate developers.

The central government should continue the property cooling measures, and prevent local governments from easing home purchase restrictions; otherwise even the achievements it has made will be wasted. In addition, the central government should make more use of economic tools such as taxation and loans than administrative means to curb runaway property prices and to promote the healthy development of domestic real estate market in accordance with the market rules.

The third task is providing further tax relief to small and micro businesses.

Heavy tax and financial burdens are a common problem facing small and micro businesses. Unlike major companies, small and micro businesses have a short life cycle, weak ability to cope with market risks, backward technology and equipment, low labor productivity, and small profit margins.

Due to the rising costs of energy, raw materials, and labor, small and micro businesses face greater difficulties in survival and development than major companies, so most countries are providing tax relief to small and micro businesses. As small and micro businesses only account for around 10 percent of China’s total tax revenue, granting them tax relief will only have a limited impact on the country’s fiscal revenue, but can greatly boost their development and increase employment.

Therefore, the country should introduce new policies for reducing the tax burden on small and micro businesses. For example, in terms of the turnover tax, the country can abolish the business tax on small and micro businesses and individual businesses, or raise the thresholds for levying value-added and business taxes on small and micro businesses. China can also reduce the income tax on small and micro businesses and individual businesses. In addition, greater efforts should be made to clean up administration and brokerage fees, and abolish all unauthorized fees.