US tax cut plan may force China to accelerate tax reform: expert

President Donald Trump's tax cut plan would lead to the return of the American capital and businesses to the home base and have impact on China's foreign exchange reserves and real estate industry, according to an expert.

Trump's plan of slashing taxes, which would help reduce the pressure of the US caused by the Chinese yuan's depreciation, capital outflow and the increased foreign direct investment, might puncture the bubbles of the Chinese property market, Liu Zhibiao, a national political advisor and professor in economics at Nanjing University, said in a recent interview with

Last week, the US Senate narrowly approved Trump's tax overhaul, which would be the largest change in the US tax laws since the 1980s, moving Trump a big step closer to the goal of reducing taxes for businesses and the rich. After the vote, the US president praised the Senate for passing "tremendous tax reform" and said "people are going to be very, very happy".

In the interview, Liu shed light on the potential impacts of the US tax cut plan on the Chinese economy. First, China's foreign exchange reserve would shrink because capital customarily goes to the places where taxes are low. Secondly, China's housing prices would drop due to the US tax cut plan, and the situation would be even worse if people exchange the Chinese yuan for US dollar. Thirdly, China's magnetism to foreign capital would recede if the Chinese government takes no action to change the current tax policy.

However, the Chinese professor said that these predictions would become true only if the Chinese government takes no countermeasure to limit free flow of capital.

In Liu's opinion, the Chinese government had already made preparations for the possible US tax policy change, strengthening control on the foreign exchange and property markets. "The US tax cuts would not lead to dramatic devaluation of the Chinese yuan and would not stop the growth momentum of overseas investment by the Chinese companies," said Liu, adding that the Chinese government would not turn a blind eye to the tremendous US tax reduction.

Since the beginning of this year, the Chinese government has tightened its grip on foreign exchange and the property industry, with some big Chinese enterprises like Dalian Wanda Group being ordered not to make big overseas investment, which Beijing said would cause capital flight. In addition, the Chinese government is considering a plan of structurally cutting taxes for enterprises.

"I suggest that China should reduce taxes and ease restrictions in order to carry out the supply-side reform. And then China should expand the domestic consumption to reshape its role in the global value chain," noted Liu, adding that Trump's tax cut plan would force China to implement tax reform especially at a time when the Chinese private companies are calling for lower taxes.

Related Stories
Share this page
Touched Sympathetic Bored Angry Amused Sad Happy No comment

Palace Museum embraces digitalization with help of technology firmAmerican aviator designs game-based flight training program for Chinese kidsChina's booming coffee business brewing more cups for StarbucksChina set to resume tours to South Korea amid signs of thaw in relationshipNetflix acquires first online drama series produced in ChinaHomebound: More overseas talents return to China #Oriental Outlook #China makes historic breakthrough in study of dark matterDomestic, U.S. firms win big at tech awardsMillennials, online sales driving gold demand, says WGCSex education urgently needed in China amid surging cases of child molestation, says non-profit
< Prev Next >