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China acts on high corporate costs

Updated: Aug 24,2016 9:18 AM     Xinhua

BEIJING — The Chinese government has come up with a new set of policies in an attempt to reduce corporate costs.

On Aug 22, the State Council released details of departmental tasks to improve the business environment.

Concrete targets have been set on reducing costs across the board in taxation, financing, labor, energy and logistics.

Taxes will be reduced by more than 500 billion yuan (about $75 billion) each year as business tax is replaced with value-added tax.

An imperfect market mechanism put a high operational burden on companies, but was concealed during galloping economic growth, according to Zhang Jun, chief economist of Morgan Stanley Huaxin Securities. As the economy has slowed these high cost have been exposed.

High corporate costs stem from structural problems in China’s economy, Zhang said.

Therefore, the solution does not lie in temporary campaigns, but in an overhaul of the whole economic structure.

The plan makes it clear that cutting corporate costs will include less bureaucracy, more innovation and mass entrepreneurship, and the development of Internet-related sectors.

Cost cutting by ministries and departments has been poorly coordinated, according to Huang Qunhui of the Chinese Academy of Social Sciences. Detailed, systematic assignments are required, managed by the State Council.

Previous efforts by ministries and departments have yielded very little return. In June, the average cost of large industrial companies was 86.02 yuan for each 100 yuan of main business revenue, down by only 0.11 yuan from a year earlier, data from the National Bureau of Statistics showed. Profits however, in the same period rose by 5.1 percent.

If policies are put into practice, companies may see their costs continue to decline and their profits rise in H2, Huang said, while warning that these policies may impede efforts to eliminate overcapacity.

The government plans targeted measures to cut costs in steel and coal mining sectors.