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News Analysis: China emphasizes tax cuts in seeking growth

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BEIJING, Aug. 1 (Xinhua) -- China's latest efforts to implement structural tax cuts will benefit its economic restructuring and promote steady growth amid the current economic slowdown, analysts have said.

China will attach more significance to seeking steady economic growth and adhere to a proactive fiscal policy and prudent monetary policy, according to a newsletter released Tuesday after a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee presided over by President Hu Jintao.

"The country will intensify the implementation of policies regarding structural tax cuts," the newsletter said.

Analysts have said that structural tax cuts will help alleviate tax burdens for businesses and individuals, serve the country's economic restructuring and promote high-quality growth.

Fan Yong, a professor at the Central University of Finance and Economics (CUFE), said structural tax reduction will not mean simply cutting tax rates, but a structural adjustment that will include both tax increases and reductions.

"The reform is a fiscal policy that reflects the country's economic restructuring goals," Fan said.

Since the beginning of this year, China has implemented a raft of tax-cutting measures, including a pilot program in Shanghai to replace the business tax with a value-added tax (VAT), extending a policy that halves business income taxes for small firms with low profits to 2015, as well as cutting import tariffs for more than 730 products.

Shanghai started a trial program to replace the business tax with a value-added tax on Jan. 1 in an effort to decrease the overall tax burden and boost the transportation and service sectors.

The pilot program has been expanded to 10 more provinces and cities, the State Council announced last week.

The average tariff on more than 730 kinds of imported goods was lowered to 4.4 percent as of Jan. 1, less than half the rate for most favored nations under WTO rules.

Some energy-related products, sophisticated equipment-making products, parts and facilities used in emerging industries and some consumer goods were included in the tariff cuts.

Fan said structural tax reduction will significantly boost economic growth and optimize the country's economic structure.

Dwindling orders from Europe and other trade partners have sapped China's exports and, combined with a cooling property sector, slowed the country's economic growth rate to 7.6 percent in the second quarter, the lowest level since the first quarter of 2009.

Guo Tianyong, a professor at CUFE, said China should not use just monetary policies or investment to spur economic growth, but put more emphasis on optimizing its economic structure.

The country should earnestly implement structural tax reduction policies to spur economic growth, Guo said.

"Although tax cuts may reduce the country's tax revenues in the short run, it will promote higher-quality economic growth and thus expand the source of taxation in the long term," he said.

China's economy is showing signs of stabilization in spite of the current slowdown.

Customs authorities said exports rose 9.2 percent to 954.38 billion U.S. dollars in the first half, 1.6 percentage points higher than in the first quarter.

Preliminary figures for the HSBC purchasing managers' index (PMI), which gauges the manufacturing sector, rose to a five-month high of 49.5 in July.

The International Monetary Fund (IMF) said in a report last week that China's economy may be experiencing a soft landing despite growing global headwinds, adding that its economic growth will slow to about 8 percent this year and then rise slightly to 8.5 percent in 2013.

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