China warns of 'tough struggle' ahead after lowering growth targets

China warns of 'tough struggle' ahead after lowering growth targets

China warns of 'tough struggle' ahead after lowering growth targets

The rate of value-added tax (VAT) for manufacturers will be reduced from its current 16% to 13% and the VAT rate for the transportation and construction sectors from 10% to 9%.

China will cut company taxes and employer social insurance contributions paid on behalf of workers by almost 2 trillion yuan ($298 billion), Li said.

As the growth rate of the Chinese economy slowed following US-imposed tariffs on Chinese goods worth billions of dollars a year ago, Beijing has now taken new measures to reignite its economy, using tax cuts as the first line of defence to reverse the losses.

Deficit target has been raised to 2.8 per cent of gross domestic product from 2.6 per cent in 2018, providing more fiscal leeway for government spending.

In a bid to defuse USA and European trade complaints, Premier Li Keqiang pledged in a speech at the opening of China's national legislative session that foreign and local companies will be "treated as equals".

The world's two biggest economies have also been engaged in an economic conflict over U.S. allegations that China steals technology and forces foreign companies to hand over trade secrets in an aggressive push to challenge American technological dominance.

In recent weeks, the United States and China appear to have moved closer to a trade deal that would roll back USA tariffs on at least US$200 billion worth of Chinese goods.

China has set its GDP growth target at 6-6.5 percent for 2019, according to a government work report available to the news media ahead of the annual legislative session on Tuesday.

Over the past year, China's central bank has cut the reserve requirements for commercial lenders five times to spur loans to small and private companies - vital for growth and jobs.

A lower and less-specific target might offer the government more flexibility in pursuing structural reforms and implementing its debt de-risking campaign compared to a more concrete and aspirational figure. China's imports also fell at the start of the year.

In recent years, China has rapidly constructed islands with military infrastructure in the South China Sea, where it and several Southeast Asian countries have overlapping territorial claims.

President Xi Jinping's government is expected to use this year's session to announce measures to support economic growth including tax cuts and more support for entrepreneurs who generate China's new jobs and wealth.

The Chinese government announced plans for higher spending.

Those external factors, Li said, have led the central government to decide on a somewhat softer and lower growth target for the country. But the chief USA envoy, Trade Representative Robert Lighthizer, said earlier the two sides still had much work to do.

Li's work report also said China will further improve market access for foreign investment and create an environment in which Chinese and foreign firms are "treated as equals and engage in fair competition".

China might be preparing to offer measures like the further opening of the auto and financial sector to foreign investment and cutting of tariffs of foreign products as concessions in negotiations with the United States, and thus Li had no incentive to make pledges in these areas before a deal is reached.

U.S. Secretary of State Mike Pompeo said on Monday he thought both nations were "on the cusp" of a deal to end their trade war.

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