Asia Unhedged — China central bank official says tax cuts more effective than rate cuts

A Chinese central bank official said tax cuts would be a more effective way of stimulating the economy than interest rate cuts, as companies are still unwilling to invest, the National Business Daily reported on Friday.

Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China, said companies were caught in a liquidity trap and regulators should focus more on fiscal policy adjustments, the paper said.

“The most important reason for the deviation between the increase in M1 (money supply) and the growth of the economy is that enterprises lack the willingness to invest,” Sheng was quoted as saying.

The comments by the statistics official appeared to be largely a reiteration of remarks he was reported to have made last weekend, when he also said China has room to increase its fiscal deficit ratio to between 4 and 5 percent of GDP to boost the economy more effectively.

Despite six interest rate cuts since late 2014, China’s economy has continued to slow, indicating monetary policy has become less effective at boosting growth than in the past, economists have said….

The paper did not say whether Sheng favoured cutting any specific taxes. He had argued taxes were high, especially for small and medium sized businesses, in a report earlier this year.

China is expanding tax reforms by replacing a business tax with a value-added tax (VAT) this year.

Asia Times
China central bank official says tax cuts more effective than rate cuts
Asia Unhedged

Reporting by David Stanway; Editing by Eric Meijer and Kim Coghill