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Two Sessions 2019 (Lianghui)
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Premier Li Keqiang delivered the government work report during the opening of the National People’s Congress in Beijing. Photo: Bloomberg

Six key takeaways from China Premier Li Keqiang’s annual policy blueprint

  • The government set the economic growth target for 2019 in a range of 6.0 to 6.5 per cent during the opening of the National People’s Congress
  • Beijing also announced a significant 3 percentage points cut in value-added tax rate for manufacturers to 13 per cent

Chinese Premier Li Keqiang delivered his 2019 government work report on Tuesday morning to the National People’s Congress in Beijing, but what does it mean?

1. Uncertain outlook

The government is foreseeing “graver and more complex” risks and challenges of a “both predictable and unpredictable” nature, and China must be “prepared to fight tough battles” this year.

As such, the government has set the economic growth target in a range of 6.0 to 6.5 per cent, which offers Beijing the necessary leeway to cope with those uncertainties.

US President Donald Trump met with China's Vice-Premier Liu He in the Oval Office of the White House in Washington last month. Photo: AFP

Beijing has also set a higher deficit-to-gross domestic product ratio of 2.8 per cent for 2019, from 2.6 per cent in 2018.

The government admitted that “trade disputes” with the United States had generated negative impact on business operations in China and market expectations, but that Beijing had “appropriately” handled the disputes.

2. Tax cut

The government announced a 3 percentage points cut in value-added tax rate (VAT) for manufacturers to 13 per cent, a significant tax cut.

The VAT rate for construction and transport companies was also cut by one percentage point to 9 per cent.

The VAT tax cut is part of a broader efforts by Beijing to help its domestic businesses, especially the manufacturing sector, that is vital for employment and social stability.

Other measures include lower requirements for employers to pay into pension funds, reduction of toll stations on motorways and a cut of utility prices.

Industrial use electricity charges will be slashed by 10 per cent in 2019, with broadband internet fees to be cut by 15 per cent and mobile communications fees to be reduced by 20 per cent.

3. The elderly and young

The government is encouraging investment in elderly care facilities and nurseries. Photo: Simon Song

The government is trying to improve social services in 2019, especially in health care and education which have both received widespread public criticism.

Beijing is assuring its people that their interests will not be eroded even though the government is tightening its belt and the country is facing grim challenges ahead.

For major disease insurance, the state reimbursement for medical bills will be increased from 50 per cent to 60 per cent.

The government is also encouraging investment in elderly care facilities and nurseries.

The government promised that the process of drug and vaccine supervision will be enhanced and serious punishments will be imposed after a slew of vaccine scandals shocked the country last year.

4. Defence

Military delegates arrive at the Great Hall of the People before the opening session of China's National People's Congress in Beijing, Tuesday. Photo: AP

According to China’s budget report, China’s defence funding this year will grow by 7.5 per cent, making it the fourth year of a growth of less than 10 per cent.

While the growth rate is down from 8.1 per cent last year, China’s military advancement still triggers a lot of concern especially in Southeast Asian nations, which are on high alert against China’s military deployment in the South China Sea.

The United States is also keeping a close watch on China’s defence spending, especially with China catching up in terms of military technology and also its expanding presence overseas.

Li said military modernisation will be further pushed forward and actions will be taken to boost military combat readiness.

The military will be a force to “protect China national sovereignty, security and development interest,” he said.

5. No ‘Made in China 2025’

The Chinese government announced the ‘Made in China 2025’ strategic plan in 2015. Aimed at closing the gap with Western hi-tech prowess and lessening China’s dependency on imported technology. Photo: Reuters

The phrase “Made in China 2025”, a Beijing strategy that invites suspicion from the US and Europe, did not appear in the 2019 government work report, but Beijing’s ambitions for upgrading its manufacturing industry remains.

Li said that China will accelerate the process of “building up a powerful manufacturing country”.

In particular, China will enhance fundamental industrial development and technology innovation.

6. Debt mountain

China will allow local governments to issue 2.15 trillion yuan (US$320 billion) worth of “special purpose” bonds. Photo: Reuters

In light of the tax cut, economic slowdown and big infrastructure spending, the government is allowing its mountain of debt to grow.

In particular, China will allow local governments to issue 2.15 trillion yuan (US$320 billion) worth of “special purpose” bonds – the bonds that are not counted as government debt.

The amount was 800 billion yuan (US$119 billion) higher than the budgeted amount in 2018, but it was lower compared to earlier market expectations.

China will also continue to allow local governments to issue general bonds to replace other forms of debts so that local authorities can pay lower interest on their debt.

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