China promotes tax breaks to spur business investment and growth

Out-Law News | 29 Sep 2014 | 11:10 am | 1 min. read

China plans to use tax breaks to encourage manufacturers to upgrade equipment and increase spending on research and development (R&D) to improve the manufacturing industry.

The state-run Xinhua News Agency said the move was agreed at a meeting of China’s State Council (cabinet), presided over by Premier Li Keqiang on 24 September.

According to Xinhua, companies that bought new R&D equipment and facilities after 1 January, or who have “minor fixed assets”, will be eligible for tax reductions “based on value”.

“Imported high-tech equipment will also enjoy tax deductions in aviation, bio-medicine production, manufacturing of railway and ships, electronics production including computer and telecommunications, instrument production and those used in making IT products and software,” Xinhua said.

The cabinet’s decision is designed to prompt companies into making technical improvements, “especially innovation of small and medium-sized enterprises”, Xinhua said. The cabinet called on government agencies and institutions to implement the new measures “as soon as possible” to ensure the ‘made-in-China’ brand was backed by “advanced technology and equipment, encouraging more competitive products with high added value”.

Xinhua said analysts believed the measures “will not only start a new round of innovation but also spur fixed asset investment, and in the bigger picture contribute to stabilising economic growth”.

The chief economist of China-based CITIC Securities Co, Zhu Jianfang, told Xinhua the new measures “will lighten burdens of enterprises” and lead to investment in equipment upgrades. Zhu said the move could also help resolve the “low technical level of home-grown companies”.

Xinhua said that according to figures from the Shanghai Stock Exchange (SSE), the combined tax deductions of A-share listed companies in the first year after the new measures take effect is expected to reach around $38 billion, which the SSE said is equal to 7.8% of the companies’ total cash flow in 2013.

SSE analyst Zeng Gang told Xinhua the new measures would help China's manufacturers “greatly improve their global competitiveness” and create new products.

Zhu said: “Under the guidance of the government, enterprises will actively invest in fixed assets, upgrade their technologies and equipment, which will be a boon to current economic growth and nurture growth potentials in the long run.”