Chinese stocks rally after tax cut notice

While warning of greater internal and external risks to the Chinese economy, Premier Li Keqiang on Tuesday sought to reassure domestic and global investors that growth in the world's second largest economy will be stable and business conditions will be improved.

President Xi Jinping (center) and other leaders of the Communist Party of China and the State attend the opening meeting of the second session of the 13th National People's Congress at the Great Hall of the People in Beijing Tuesday. (Photo: Xinhua)

In his annual Government Work Report to China's legislative sessions, Li also stressed China will resolutely defend its legitimate rights and interests, amid challenging overseas environment for China's trade and companies.

"A full analysis of developments in and out of China shows that in pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges," the premier said in the televised address of the opening of the second sessions of the 13th National People's Congress (NPC). "We must be fully prepared for a tough struggle."

Under such an assessment, the report sets this year's growth target of between 6 and 6.5 percent, lower than the "around 6.5 percent" target for 2018.

"This is a very prudent target," Cao Heping, a professor of economics at Peking University, noting that the trimmed target range takes into account all the challenges and leaves policy-makers ample room to maneuver in reform and risk-averting efforts.

Behind the slower growth is a deep transformation in the economy from focusing on bigger expansion and faster speed to focusing on a growth target, and old outdated capacities are in the process of being replaced, analysts said.

"We should not only focus on the numbers. Development quality and industrial upgrading efforts contained in [the report] are our future focus," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University.

The cuts to China's closely watched growth target came as the Chinese economy is facing downward pressure and deteriorating external conditions marked by rising trade tensions. However, the premier pointed out that China still has "enormous potential" and "has the unshakable will and ability needed to prevail over difficulties and challenges of any kind and our economic fundamentals are sound and will remain sound over the long term."

Aiming to unleash that potential, the Chinese premier announced a wide range of measures to boost economic activity, including reforms to improve conditions for business, particularly private and small companies. 

More directly, the government will cut taxes and fees worth 2 trillion yuan ($298.31 billion) for companies in 2019 and increase funding for small companies by at least 30 percent.

Market rally 

That drew several rounds of applause from the deputies, who include officials and business leaders. The mood also extended to the stock market  on Tuesday. After opening slightly lower in the morning, Chinese stocks extended a week-long rally, with the NASDAQ-style board ChiNext closing 3.51 percent higher, the Shenzhen Component Index up 2.25 percent and the Shanghai Composite Index up 0.88 percent.

NPC deputies, who will review the report, also expressed confidence on Tuesday. "The central government's tax cuts for small and medium firms will truly benefit ordinary people," Chen Xin, an NPC deputy from East China's Jiangsu Province, told the Global Times.

But the nearly two-hour long speech also has a global audience, given China's role as the leading growth driving force for the global economy and trade.

The "two sessions" are no longer something only about China, they also affect the world's economic and political order, Anis Benhedouga, an Algerian reporter, said on Tuesday after attending events. For example, China has made it very clear that it will work for peace and international cooperation as well as choose the path of dialogue to settle international conflicts, Benhedouga said.

Li also said that China will continue to promote all-round opening up of its domestic market for foreign companies and investment and create better conditions for them. "We will strengthen efforts to protect foreign investors' legitimate rights and interests," he said.

China will also continue to expand imports and pursue global cooperation under the Belt and Road Initiative (BRI), Li said, announcing a second import expo and a second summit on the BRI this year.

"The Government Work Report does not only need to address a domestic audience but also a global audience, so it's very important that China reaffirms its commitment to further open up," said Bai Ming, a research fellow at the China International Market Research Institute.

Firm stance

But facing rising trade tensions and politically charged moves against Chinese companies, particularly from the US, the Chinese premier struck a balanced but firm stance.

Chinese and US officials have conducted seven rounds of high-level negotiations since the US launched a tariff war on China and appear to be near a final deal. The two economic powers are also locked in an expectedly prolonged dispute over Chinese technology firms after the US launched what Chinese officials call a politically charged crackdown against Chinese firms Huawei and ZTE. 

"The report expressed a very balanced stance to the US that China will continue talks but you can't come here and tell us we can't develop this and that," Bai said.