US tax cuts constructive for China's reform: economist

Donald Trump's recent tax reduction plan could be a good thing for China, which is facing huge economic downturn pressure, according to an economist.

Xu Hongcai, director of the Information Department of the China Center for International Economic Exchanges and a non-resident senior fellow of the Center for China and Globalization, a non-governmental think tank, made the remarks at a seminar held in Beijing.

Trump's tax cut plan is aimed at enhancing the competitiveness of America's real economy, and China should learn from it as part of efforts to promote its supply-side reform, said Xu.

The tax cut plan is not an isolated incident and it would be supplemented by a series of new actions next year, as the policy would actually benefit all segments of the society in the US, said Xu, predicting that the US president is likely to repeal the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into the US federal law by the then President Barack Obama in 2010 as a response to the financial crisis in 2008.

The Act brought the most significant changes to the financial regulation in the US since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affected all federal financial regulatory agencies and almost every part of the nation's financial services industry.

The Chinese economist said that Trump's tax cut plan sets a good example for China especially in the context of foreign trade contributing largely to the Chinese economy, which saw 6.9 percent growth in the January-September period.

"Without the pillar of foreign trade, China's economy would undoubtedly drop in the January-September period," said Xu, adding that the growth of China's fixed asset investment reached a record low at just 7.3 percent in the period, which casts shadow on the country's economy.

"If China only uses subway and railway construction to drive the economy, the efficiency would be very low because the investment could become bad debt," said Xu, attributing the phenomenon to the fact that such construction projects are funded by the government.

With the private investment merely growing 5.8 percent in the January-October period, Xu predicted that the previously released supervisory rules for the PPP projects would drag down the growth of infrastructure investment in the following year.

The economist also warned that the monopoly of the state-owned enterprises in the energy sector would narrow the access for the private investors, which are reluctant to take part in the infrastructure-related PPP projects.

At the 19th National Congress of the Communist Party of China held in October in Beijing, Xi Jinping emphasized the great importance of reducing taxes, which is important to China's tax reform and supply-side reform.

"Tax reform will have impact on the process of modernization of the national governance, as China plans to build an economy mainly driven by consumption," said Xu.

"Many people are wrong to see the tax cuts in the US as a bad thing. China should evaluate the impact of the American tax cut plan on China's economy and then accelerate the tax reform."


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