China Goes Republican
We all know about the Republican Party’s “capitalist-friendly” policies, calling for lower taxes and less regulation to get out of the way of business. Well here’s a surprise. Beijing has taken up the banner of the GOP!
China’s State Council, also known as the Cabinet has launched a series of sweeping measures to boost small and medium businesses.
Beijing says small businesses create most of the jobs in China. That’s why the Cabinet has put a priority on the stable and healthy development of the sector, with an eye to boosting the whole nation’s economy.
Tax cuts and tax relief are at the top of the list. For the whole of 2010, China will cut the corporate income tax rate from 25 percent to 20 percent for small businesses whose annual taxable income is less than 30,000 yuan ($4,392). That’s an amount greater than the average annual income in China.
In another measure, the taxable income of small businesses will be cut in half to trim corporate tax burdens. Struggling small companies that fail to pay tax on time can enjoy a three-month grace period.
In an unusual display of frankness, the cabinet said in a statement, “More effective measures are needed to help ailing small and medium enterprises out of a mire of difficulties.”
One of the major problems facing China’s small and medium business sector is a welter of red tape and bureaucracy in dealing with financial institutions. Even though small business is so important to job-creation China’s bankers, who work under government control, are reluctant to lend despite the nationwide push to increase bank lending.
Small businesses are seen as higher risks for banks. Lenders are reluctant to offer credit to companies that lack credit track records. Many small businesses, desperate for capital have turned to underground loan sharks.
In its decree, the cabinet rolled out a host of new measures to encourage financing for small business. The government said it will also cover a part of any bad loans that banks incurred from lending to small and medium businesses. That’s intended to encourage banks to boost their small business lending with less worry about non-performing loans. There are also plans to train one million managers in small companies over the next three years to improve their corporate governance.
Beijing also cut red tape in the countryside. The government said it would encourage private capital to participate in the reform of rural cooperatives and to buy into rural commercial banks to give small businesses more financing options. Qualified small-sum loan companies, which are banned from taking public deposits, can also transfer into rural commercial companies. The new measure will stimulate private companies to set up loan companies before they are qualified to step into the bigger and more lucrative banking industry.
That may not sound like Republicanism as we in America know it. But small business and rural cooperatives are the heart of private enterprise in China.
Once again, Beijing proves that it is dead serious about boosting the economy and creating jobs.
