China seen heading for sub-6% economic growth


It is refraining from cutting benchmark policy rates or pumping large volumes of cash
Chief Investment Office04 Sep 2019
Photo credit: AFP Photo


CHINA & HONG KONG SAR

Economists are downgrading their forecasts for economic growth in China again, to below a level seen as necessary for the Communist Party to meet its own goals in time for its centenary in 2021.

Economists at financial institutions on Tuesday (3 September) all cut their forecasts for gross domestic product growth (GDP) in 2020 to below 6% as a result of increasing risks from the tariff war with the US.

China is refraining from cutting benchmark policy rates or pumping large volumes of cash into the economy even as growth slows to the weakest in almost three decades and the tariff escalation in August adds further headwinds. That is endangering President Xi Jinping’s ability to claim China has reached a “moderately prosperous society” that has doubled 2010 GDP by next year, as a rate above 6% in 2019 and 2020 would be needed.

Demand for credit has been weak, and while policy easing since late last year has helped moderate the slowdown, the impact has been small, according to a report by an economist. With all the issues facing China, “more policy easing is needed to convincingly stabilise economic growth,” he said.

Output growth softened to 6.2% in the second quarter from a year earlier, close to the lower bound of the government’s full-year target of between 6% and 6.5%. Earliest indicators compiled by Bloomberg showed the economy slowed further in August. – Bloomberg News.

The Hang Seng Index fell 0.39% to 25,527.85 while the Shanghai Composite Index gained 0.21% to 2,930.15.

 

REST OF ASIA

Indonesia plans to cut tax on corporates and scrap a levy on dividend to make companies in Southeast Asia’s largest economy draw more foreign investment amid a global slowdown.

The corporate tax will be gradually lowered to 20% starting 2021 from 25% now and companies listing their shares may be subjected to a lower rate of 17% for a period of five years, Finance Minister Sri Mulyani Indrawati told reporters after a cabinet meeting in Jakarta on Tuesday (3 September). The government will overhaul laws related to value-added tax, income tax, and general taxation, she said.

Lower taxes may help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate businesses from China as it spars with the US on trade. President Joko Widodo, who won a second five-year term in April, has pledged to slash taxes and overhaul labour laws to draw billions of dollars in foreign investment to bolster growth that slowed to 5.05% in the second quarter, its slowest pace in two years.

The tax on dividend earned by local and foreign investors will be eliminated if it is reinvested, Indrawati said. The revised regulations will also cover tax breaks extended to various sectors, she added, saying that individuals – foreign or domestic – will be required to pay taxes only if their stay exceeded 183 days.

The government will also slash the penalty on taxpayers who correct their returns after filing and owe money to the exchequer, the minister said. The changes to the tax laws will require parliament approval and Jokowi, as the president is known, has said it will be a priority in his second tenure starting next month.

With Indonesia’s Internet economy forecast to swell to USD100b by 2025, the tax rules will be amended to require foreign companies to pay corporate tax and collect, report, and submit value- added tax. That will also ensure a level-playing field for the digital players with the local firms. – Bloomberg News.

Australia’s S&P/ASX 200 Index declined 0.90% to 6,514.30 at the open on Wednesday (4 September). It weakened 0.09% to 6,573.40 the previous session.

South Korea’s Kospi Index added 0.21% to 1,969.74 early-Wednesday morning. It fell 0.18% to 1,965.69 the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) decreased 0.72% to 10,558.21.


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