IMF: China right to aim to boost consumption

China announced it will cut company taxes and employer social insurance contributions paid on behalf of workers. (AFP pic)

WASHINGTON: China is right to aim its stimulus policies at boosting domestic consumption since that will produce better quality economic growth, the International Monetary Fund said Thursday.

Beijing this week announced it had lowered its 2019 growth target to 6.0%-6.5% for the world’s second-largest economy.

And in response to the slowing growth, amid the trade friction with the United States, policymakers said they would lower taxes, reduce fees and streamline red tape.

“The IMF’s view is this will allow policymakers in China to focus on improving the quality of growth rather than maintaining a high quantity of growth,” fund spokesman Gerry Rice told reporters.

“This more modulated growth rate in China is something that the IMF has actually been advocating and encouraging … for some time.”

The Washington-based lender has long called on Beijing to shift away from a focus on export-led growth, so “we think this is an appropriate step,” Rice said.

“We welcome the intention to support consumption which remains relatively low in China.”

He also praised the cuts to the “relatively high social security contribution rate,” which penalizes employment, as well as the changes to the value-added tax, a move which “reduces inefficiencies and opportunities for tax avoidance.”

China announced it will cut company taxes and employer social insurance contributions paid on behalf of workers by nearly 2 trillion yuan (US$298 billion).

The VAT for manufacturers will be lowered to 13% from 16% and drop 1% for the transportation and construction industries.

Beijing also will increase spending, with the targeted fiscal deficit set to increase to 2.8% of GDP from 2.6% last year.

Rice cautioned that Beijing should accompany the reforms will additional steps to boost consumption, including “expanding health, pensions, education spending and transferring more money to poorer households.”