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Law360 (May 22, 2020, 2:37 PM EDT) -- China plans new tax cuts worth 4.5 trillion yuan ($631 billion) while forgoing economic growth forecasts, the country's No. 2-ranking official said in a key policy speech Friday that touted measures to rescue the country's economy from the COVID-19 pandemic.
Premier Li Keqiang told the National People's Congress of the need for "extraordinary measures for an unusual time" and said the Chinese Communist Party must "blaze a new path" on which it can respond effectively to shocks and sustain positive growth for the world's second-biggest economy.
Li outlined measures including 2 trillion yuan to be transferred to local governments as stimulus payments for businesses and households. China's small businesses and sole traders will have their income tax payments delayed until 2021, at a cost of 2.5 trillion yuan, according to Li's speech.
The premier broke with a decades-old tradition among Chinese leaders of setting an annual target for growth in the country's gross domestic product, citing uncertainty surrounding the pandemic, global economic conditions and international trade.
Li indicated China would continue to pursue market-based changes to its economy, saying "reform and opening up" were keys to achieving policy goals.
"We must be clear that efforts to stabilize employment, ensure living standards, eliminate poverty and prevent and defuse risks must be underpinned by economic growth, so ensuring stable economic performance is of crucial significance," he said.
China's GDP grew by 6.1% in 2019, its slowest rate in three decades, and some analysts have predicted growth of only 2% this year, even with an expected second-half rebound.
In his annual budget speech, officially called a work report, Li told legislators at the start of their new session that China's government would continue to provide stimulus spending as long as needed to pull the economy out of the crisis. He detailed measures including continued cuts in value-added tax and a further 500 billion yuan in reduced taxes and fees.
Earlier this month, the country's Finance Ministry announced that a VAT cut for small businesses would be extended to Dec. 31. In April, the ministry said other tax breaks to help rural and small businesses would run through 2023.
Li gave an exact figure for the government's budget deficit target, widening it to more than 3.6% of GDP and growing by 1 trillion yuan from last year.
In addition, China will move to reduce businesses' production and operating costs by extending a 5% electricity price cut for general industrial and commercial enterprises to Dec. 31 and by cutting rates for broadband and dedicated-internet access services by 15% on average, according to his speech.
--Editing by Neil Cohen.
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