China's finance ministry talks up tax breaks and spending on homegrown tech

BEIJING — China will cut taxes and fees on a greater scale this year, while focusing on supporting the nation’s tech development, Finance Minister Liu Kun said Tuesday.

China’s economic growth slowed after a rebound from the initial shock of the coronavirus pandemic in early 2020. Analysts expect more fiscal and monetary policy support this year.

The first fiscal policy task is to cut taxes and fees by a greater scale than last year, Liu told reporters at a press conference, without specifying a figure. Those reductions totaled 1.1 trillion yuan ($173.5 billion) in 2021.

The second point Liu brought up was support for technological “self-reliance” and stable manufacturing supply chains. National expenditures on science and technology rose by 7.2% in 2021 to 970 billion yuan, he said, noting the funds supported development of chips and new energy vehicles.

Escalating tensions with the U.S. have cut China off from suppliers of key technologies, and prompted Beijing to introduce policies to support homegrown tech. Last year, the central government announced it planned to increase spending on research and development by more than 7% a year between 2021 and 2025.

“The Ministry of Finance sticks to the priority of ensuring the national development strategy of scientific and technological self-reliance and self-improvement,” vice minister Yu Weiping told reporters at the same meeting, in response to a question about the ministry’s work on tech. That’s according to a CNBC translation of the Chinese.

Yu said the central government increased spending on basic research last year by 15.3% to an unspecified amount, primarily to support work at state-run institutions.

He claimed that during the first three quarters of 2021, businesses in China received 1.3 trillion yuan in additional deductions for research and development expenses, and more than 330 billion yuan in tax cuts.

During Tuesday’s press conference, the finance ministry officials also emphasized more support for small businesses, timely pension payments to retirees and greater transfer of payments from the central government to local governments.

There was no mention of real estate, a giant industry that has contributed significantly to local government revenues.

China’s property market has slumped in the last several months amid Beijing’s crackdown on developers’ high reliance on debt for growth.

In 2019, more than 20% of regional and local government revenue, or 25.7 trillion yuan, came from land sales — mostly to property developers, according to Moody’s.

For some provinces, the share of revenue was more than 40%, the ratings agency said. Altogether, property and related sectors account for more than a quarter of China’s GDP, according to Moody’s.

The central Chinese government is set to release its budget and economic growth target for the year at an annual parliamentary meeting in early March.