China premier pledges tax cuts and deregulation to repair country’s slowing economy

Top official also attempts to allay fears over spying by Chinese tech companies

China’s premier has delivered the clearest acknowledgement yet from one of the country's senior officials that the economy is slowing and faces a series of difficulties.

Li Keqiang, who as premier is China’s second-highest official after President Xi Jinping, said at his annual news conference that the answer lies in cutting corporate taxes and deregulation, and not a return to the strategy during previous downturns of printing money and ramping up government spending.

However, recently released economic data has suggested that the government is indeed turning to monetary expansion and heavy infrastructure investments in an effort to stabilise growth.

Mr Li also became the most senior Chinese official to try to allay foreign worries that his nation's technology companies spy on other countries at Beijing’s request, saying that this has not happened and will not. He appeared to be addressing concerns that the United States and some of its allies have been raising about Huawei, the Chinese technology giant.

Mr Li delivered his acknowledgement of the slowdown at an annual meeting with foreign and domestic reporters that the Chinese leadership often uses to outline its priorities to its people and the world. Mr Li and past premiers have sometimes used the event to offer reassurances that Beijing is tackling problems in an orderly way.

The leadership screens questions beforehand however, to ensure embarrassing or sensitive topics do not come up. For example, there were no questions this year about the government’s roundup of as many as 1 million Uighurs and members of other Muslim minorities in internment camps in western China.

Speaking in one of the cavernous chambers of the Great Hall of the People next to Tiananmen Square, Mr Li answered questions from the start about the economic slowdown, which has been a major preoccupation for many Chinese people since the summer.

“It is true that China’s economy has encountered new downward pressure,” he said in response to the first question asked. “We must take strong measures to cope with the current downward pressure.”

As one example he cited the government’s sharp cuts in corporate taxes, particularly for manufacturers, which were unveiled on 5 March. But he also tried to ease concerns that have spread since then about whether the tax cuts would lead to much wider government deficits.

Mr Li said the government would demand that the state-owned banking sector and the country’s many state-owned enterprises turn over a greater share of their profits to Beijing.

“Our determination is to dig into existing interests, and this will be like turning a knife into the government itself,” he said.

However, accomplishing that could be politically difficult. The Communist Party relies heavily on state-owned and state-controlled banks and companies to help it maintain tight political control, to provide jobs for millions of party members and to cushion the effects of the economic slowdown on struggling regions, like northeastern China.

China tries to keep its official budget deficit to less than 3 per cent of the country’s economic output, a goal it has openly copied from the European Union’s rules for its member nations.

But local governments have long borrowed money using shadowy financial vehicles and other ways to keep the loans off official books.

Mr Li also tried to address concerns raised by the United States and some of its allies about whether Chinese tech companies like Huawei might use the equipment they install overseas to gather intelligence for the Chinese government.

China’s national intelligence law, adopted in 2017, says that, “All organisations and citizens shall support, assist and cooperate with national intelligence efforts according to the law.”

But Mr Li strongly denied that the Chinese government asks Chinese companies to engage in spying.

“This is not consistent with Chinese law, this is not how China behaves,” he said. “We did not do that and we will not do that in the future.”

An hour before the news conference, the National People’s Congress approved a new foreign investment law, the main legislation before it this year. The Trump administration has pressed China for the past year to put foreign businesses on a more equal legal footing with their Chinese competitors.

China’s legislature made some tweaks to the law before passing it, notably to exhort Chinese government agencies to do a better job of protecting corporate trade secrets. But foreign business groups — which have long complained that Chinese officials and companies force them to give up their trade secrets in order to do business in China — say the new law still does not go far enough.

The law’s provisions “are still quite general and do not address a number of the persistent concerns of foreign companies or foreign-invested enterprises in China,” said Timothy P Stratford, chairman of the American Chamber of Commerce in China and the managing partner of the Beijing office of the Covington and Burling law firm.

The law may still leave foreign businesses at a legal disadvantage, especially with respect to state-owned enterprises and other Chinese businesses with strong state connections, he said. The law provides broad scope for national security reviews, he said. And the law has cursorily written provisions — many are just a single sentence — while giving broad latitude to Chinese regulators.

Mr Li dismissed concerns about how China would implement the law. “If we make a promise on opening up, we will certainly deliver,” he said, later adding, “We will treat both domestic and foreign-invested enterprises as equals.”

The New York Times