The Chinese government has released a new policy package containing 33 China stimulus measures in another effort to boost the economy in the wake of COVID-19 lockdowns. The stimulus measures expand upon support measures for companies impacted by the pandemic and seek to shore up investment and ensure the supply of basic resources. We explain how the measures will help companies and spur growth.
On May 31, 2022, China’s State Council released a set of 33 measures in a document titled Policy Measure Package to Stabilize the Economy (“the policy package”), covering a wide range of mechanisms aimed at supporting businesses impacted by the COVID-19 pandemic. The policy measures were first introduced during a routine State Council meeting on May 23.
The policy package comes just days after the city of Shanghai issued a set of 50 policy measures to boost economic activity in the wake of the recent COVID-19 lockdown. It also coincides with the reopening of Shanghai on June 1 and the gradual resumption of normal life in Beijing since May 29. The Chinese government has been ramping up stimulus and support measures in recent months to mitigate the impact of the economic disruption caused by an outbreak of the highly transmissible Omicron variant of COVID-19 in several areas of the country.
On May 25, senior party officials convened an emergency teleconference with over 100,000 party cadres, during which Premier Li Keqiang gave a speech urging local governments to swiftly implement economic stimulus measures. Many of the stimulus mechanisms proposed in the policy package are expansions of previous support measures, such as tax relief, fee reductions, and subsidies, while also proposing measures for stimulating the economy through increased investment and infrastructure spending and guaranteeing the supply of basic resources.
Below we look at how the policy measures have expanded upon previous support measures and how businesses can benefit.
WEBINAR – China’s Covid Policy and Lockdowns Explained: How Businesses Should Adapt
June 8, 2022 | 9:00 AM Seattle / 12:00 PM New York June 9, 2022 | 4:00 PM China / 3:00 PM Vietnam / 10:00 AM CEST Join us in an upcoming webinar to understand how your business can navigate a lockdown. In it, Partner at Dezan Shira & Associates, Kyle Freeman, will discuss China’s Zero-COVID policy, the lockdown situation in China, and its implications for businesses. To accommodate two time zones, this event will be held twice. Register for either the U.S. time zone showing or the China/Vietnam time zone showing. REGISTER FOR U.S. WEBINAR REGISTER FOR CHINA WEBINAR
The policy package includes mechanisms and proposals for shoring up support for micro, small, and medium-sized enterprises (MSMEs) in 14 of the policy measures. Small businesses are often seen as the lifeblood of the Chinese economy, as they collectively make up the majority of total companies, account for over half of the GDP, and employ the vast majority of people in the country. They are also some of the most vulnerable entities to disruption, and as such, the government has placed the utmost importance on ensuring their survival.
Note that MSMEs are specific legal designations in China, as stipulated in regulatory documents, such as the Small and Medium-Sized Enterprises Classification Standard Regulations. MSMEs refer to enterprises engaging in industries not restricted or prohibited by the state and satisfy the following criteria:
“Large” companies are defined as companies with operating income, assets, and staff numbers above the designated threshold for medium-sized companies in each industry.
The policy package seeks to further expand the scope of businesses eligible for VAT credit rebates. Currently, monthly refunds of incremental VAT and a one-time refund of remaining VAT credits are available to micro and small-sized enterprises (MSEs) in all industries, and companies of all sizes in six industries. The six industries are:
The policy package proposes to “explore” the extension of VAT rebates to a further seven industries, namely:
The policy package estimates that the tax rebates provided to these industries will amount to RMB 142 billion (US$21.2 billion) to reach a total of RMB 1.64 trillion (US$245.7 billion) in 2022. The policy package also reiterated the need for tax authorities to complete the issuance of the one-time refund of remaining VAT credits to MSEs and sole proprietorships by June 30.
All MSMEs and sole proprietorships in pandemic-hit sectors will be able to defer payments of the three basic social security premiums – pension insurance, unemployment insurance, and work-related injury insurance. The deferment will be implemented in stages through to the end of 2022.
This policy was previously implemented for companies in five pandemic-hit sectors, namely catering, retail, tourism, civil aviation, and road, water, and railway transportation. The policy will now be expanded to an additional 17 industries that have been impacted by the pandemic as clarified in a separate announcement issued by the Ministry of Human Resources and Social Security (MHRSS) together with three other government departments on June 1. The 17 industries cover the following:
The pension insurance premiums can be deferred until the end of 2022, while the unemployment and work-related injury insurance can be deferred for up to a year. Companies may also have to meet other criteria in line with national production policies to be eligible for the deferment, although these criteria have not been specified.
Employers that have been impacted by the COVID-19 containment measures can apply for deferred payment of housing provident funds. During the deferment period, employees who have already made payments and deposits can still withdraw payments and apply for housing provident fund loans as normal and will not be impacted by the deferral of payments.
People who have made deposits and have been impacted by the pandemic such that they cannot repay the housing provident loan as normal will not be subject to overdue fees, nor will this be included in their credit record. Each region will be able to increase the limits on withdrawals of housing provident funds as required. In the 50 measures for the city of Shanghai, the municipal government raised the withdrawal limit from RMB 2,500 (US$374) to RMB 3,000 (US$429) per household.
The policy package urges commercial banks and other financial institutions to defer payments of principals and interests on loans for MSMEs and sole proprietorships that have been impacted by the pandemic. The repayment can be deferred until the end of 2022. In addition, companies will be excluded from penalty interest for being in arrears, and the deferment will not be included in their credit record.
The policy package urges local governments to speed up the issuance of special-purpose bonds (SPBs). SPBs are a key means for local governments to raise funds for investment in infrastructure and public service projects, which in turn is one of the government’s main tools for boosting economic growth. The central government has already allocated RMB 3.65 trillion (US$547.5 billion) in SPBs for 2022.
The policy package urges local governments to finish issuing the RMB 3.45 trillion (US$517.5 billion) in SPBs that have already been released by the end of June and to have used them up by the end of August. In addition, it states that the Ministry of Finance (MOF), People’s Bank of China (PBOC), and the China Banking and Insurance Regulatory Commission (CBIRC) will guide commercial banks to provide additional financial support for eligible construction projects funded by SPBs.
There are certain limits and criteria for the types of projects that can be financed with SPBs – for instance, limited to nine major areas, including transport, energy, and affordable housing – which has in the past left some governments short of eligible projects to fund. The policy package vows to also expand the scope of projects that can be funded, but states that priority will be given to new infrastructure and new energy projects.
The policy package proposes a number of measures to promote major foreign investment projects and attract more foreign investment. The most notable of these is a call to speed up the revision of the Catalogue of Industries Encouraged for Foreign Investment. The draft 2022 edition of the catalogue increased the number of encouraged industries by 16 percent, signaling new opportunities for foreign investors. The draft catalogue is out for public feedback until June 10.
In addition, the package seeks to attract more foreign investment to high-tech fields, such as advanced manufacturing, technological innovation, and tech R&D, while also encouraging investment in less developed areas of the country, such as central, western, and northeastern regions.
In addition to the tax relief, fee reduction, and utility subsidy measures extended to small businesses, the policy package also proposes increasing opportunities for small businesses and providing additional support for loans.
The policy package urges government procurement projects to implement policies that promote the development of MSMEs. These include increasing the discount for s from the previously stipulated range of 6 to 10 percent to now 10 to 20 percent.
In addition, it calls for lowering entry barriers for MSMEs through measures like expanding combined bidding and subcontracting of large enterprises so that projects can be divided up between several companies according to their field and expertise. It also proposes gradually increasing the share of procurement reserved for SMEs from 30 percent to over 40 percent in stages throughout the year.
The policy package seeks to extend loan support for MSEs by encouraging financial guarantee institutions to provide financial guarantee support for small and medium-sized enterprises (SMEs) and sole proprietorships in the transport, catering, accommodation, and tourism industries.
The policy package also pledges to allocate RMB 3 billion (US$449.4 million) of funds to support financial guarantee institutions to further expand the scale of financial guarantee services for SMEs and reduce financial guarantee rates.
and sole proprietorships that have been impacted by the pandemic that fail to pay fees for water, electricity, and gas, must not have these utilities cut off. A deferment period of six months will be implemented for the payment of these utilities, during which no late payment fines may be meted out. Local governments can also extend this period in accordance with local needs.
Local governments are also encouraged to provide subsidies for MSMEs for utilities, such as water, electricity, and gas. In addition, the average broadband and private line tariffs for MSMEs will be reduced by another 10 percent. Tariffs were previously reduced by 10 percent for MSMEs in 2021.
When placing bids, letters of guarantee (insurance) can be used in lieu of cash to pay deposits for functions such as bidding, contract performance, and project quality. Entities requesting bids are also encouraged to waive bid guarantees for MSMEs.
MSEs and sole proprietorships in service industries that rent state-owned property can receive rent reductions or waivers for a period from three to six months. Lessors that waive or reduce rent for these businesses will be eligible for an exemption or reduction in real estate tax and urban land use tax for the current year. State-owned banks will also be encouraged to provide preferential interest for mortgage loans and other support to lessors who reduce or waive rent.
The preferential policies for lessors will apply to both state-owned companies required to reduce or waive rent and other property owners that do so voluntarily. Rent reduction and waiver policies have previously been implemented for small businesses renting state-owned property, including in the 50 Shanghai measures, which waives rent for a period of six months.
The policy package proposes a range of major infrastructure projects to be launched in 2022 in an effort to boost investment and economic activity. These projects include:
The policy package issues a raft of measures to boost China’s lagging car sales. These include:
The policy package proposes a host of support measures for the aviation industry, which has taken a significant hit during the COVID-19 pandemic. The policy package proposes a number of measures to support the aviation industry, including:
Domestic logistics have similarly taken a hit during the latest outbreak of COVID-19, with regional lockdowns and restrictions placing more pressure on the industry already overloaded by supply chain disruption that has plagued the world since 2020. The policy package looks to boost the industry by increasing investment in logistics infrastructure, in particular in cities that act as key logistics hubs and rural areas where logistics remains underdeveloped. Measures include:
The policy package includes a range of other measures aimed at propping up key areas of the economy and ensuring people’s basic livelihoods and guaranteeing the supply of key food and energy resources.
The policy package also aims at lowering the unemployment rate, which has increased significantly over the course of 2022. The surveyed urban unemployment rate reached 6.1 percent in April 2022, while the surveyed urban unemployment rate for those aged 16 to 24 reached 18.2 percent.
To combat this, the policy package offers incentives to companies that hire fresh graduates. Companies that hire 2022 graduates are eligible for a one-time subsidy of RMB 1,500 (US$225) for each person they employ until the end of the year. To be eligible, the companies must sign a labor contract and participate in unemployment insurance schemes.
The policy package pledges an additional RMB 10 billion (US$1.5 billion) in subsidies for agricultural materials on top of the RMB 20 billion (US$3 billion) in subsidies that have already been issued. The cost of agricultural commodities, such as fertilizers, has sky-rocketed in recent months, mostly due to the disruption caused by the Russia-Ukraine war, placing added pressure on farmers and threatening the production of staple foods, such as wheat and other grains. Moreover, the policy package calls for “appropriately” increasing minimum purchase prices for rice and wheat in 2022, while also optimizing subsidy policies for grain-growing farmers.
In the fall of 2021, China suffered a severe energy crunch, which led to rolling blackouts and factory closures in parts of the country. The government wants to avoid a similar setback from occurring during the summer just as parts of the country are emerging from months-long lockdowns and disruption. Even prior to the most recent COVID-19 outbreak, government officials and policymakers alike have been stressing the importance of securing energy supply in 2022, which will be achieved in the short term by increasing the production and consumption of coal. Therefore, the policy package calls for releasing coal production capacity “in an orderly manner” and enabling coal mines to increase production to ensure supply during the peak summer season.
In addition to coal-fired power, the policy package calls for ramping up investment in and construction of clean energy projects. These include vast renewable energy projects that have previously been proposed and further work on existing power infrastructure, including:
The policy package is only the latest of a range of policy measures that the Chinese government has released over the past few months aimed at stimulating the economy. Many of the measures are defined loosely to enable local governments to adapt them to suit local conditions. This means that more provincial-level and municipal governments are expected to release their own policy measures, which may differ in scope and scale.
Moreover, many of the measures proposed in the policy are merely expansions of previous policies rather than new ideas, and it is not yet clear how effective they will be at stimulating the economy, nor how capable local governments will be at implementing them, especially given the increasingly strained budgets.
As is often pointed out, 2022 is an important year for the Chinese government, as it is preparing for the upcoming 20th Party Congress, during which the Communist Party’s top leadership will be appointed for the next five-year term. Reaching and maintaining a level of economic stability will be important to showcase legitimacy.
The government also set an ambitious 5.5 percent GDP growth target for 2022 during the Two Sessions in March. If the country is to reach this target, a more direct cash-in-hand stimulus may be required, but it is still unclear whether the government is willing to reach for these monetary tools to achieve growth. Seeing how well cities recover in the aftermath of the COVID-19 containment measures may be key to understanding whether this will happen.
About Us China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com. Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
Previous Article « China’s Green Finance Market: Policies, Incentives, Investment Opportunities
Next Article Guangdong Sets Key Tasks for the Next Five Years: Highlights for Businesses »
Dezan Shira & Associates´ brochure offers a comprehensive overview of the services provided by the firm. With...
A firm understanding of China’s laws and regulations related to human resources and payroll management is ab...
Doing Business in China 2022 is designed to introduce the fundamentals of investing in China. Compiled by the ...
With the scope and penalties of China’s social credit system being further clarified in 2021, legal and regu...
As a legitimate tool for reasonable tax planning and cost saving, tax incentives play an important role. Compa...
Over the last few months, China has been quickly expanding the pilot program on electronic special value-added...
Dezan Shira & Associates helps
businesses establish, maintain,
and grow their operations.
Stay Ahead of the curve in Emerging Asia. Our subscription service offers regular regulatory updates,
including the most recent legal, tax and accounting changes that affect your business.