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Policy briefing: Full transcript, May 29

Updated: May 29,2015 5:38 PM     english.gov.cn

The State Council holds the weekly policy briefing on May 29, focusing on the import and export of consumer goods.[Photo by Feng Yongbin/China Daily]

Hu Kaihong (host):

Ladies and gentlemen, welcome to today’s policy briefing. The State Council recently improved policies regarding the import and export of consumer goods. In order to help you to better understand the information, I am glad to have Vice-Minister of Finance Shi Yaobin, Vice-Minister of Commerce Wang Shouwen, and Lu Peijun, vice-minister of the General Administration of China Customs with us to brief you and take your questions.

Shi Yaobin:

Good morning, friends from the media. Improving policies regarding the import and export of consumer goods was the top agenda item for the State Council’s executive meeting on April 28, which was presided over by Premier Li Keqiang. Some media organizations said that these measures are “red envelopes’’ from the Premier as they included tax adjustments, reductions, exemptions and rebates. As a matter of fact, I agree with it because of its simplicity and insightfulness. It’s been a month since the executive meeting, I want to use this opportunity to give you some information about the background and progress we have made.

Shi Yaobin:

Consumption is an important engine for economic growth, and has great potential in China. Our demand for domestic consumption slowed down last year and we face strong economic headwinds. At the same time, however, overseas consumption by Chinese people continues to rise and grow faster. In 2014, the number of Chinese outbound tourists exceeded 100 million and foreign consumption by Chinese citizens passed 1 trillion yuan for the first time. So, it is very necessary for us to boost domestic demand.

Shi Yaobin:

Aiming at increasing domestic consumption and boosting exports, the State Council improved tariff policies to create a better competitive environment for exports and imports. Five measures were decided during the executive meeting of the State Council which covered fiscal policy and taxation, business, customs, quality inspection and tourism. Now I want to elaborate four points regarding the fiscal and taxation sector.

First, we cut tariffs of some products. As you may know, starting from June 1, import tariffs on personal items such as suits, sneakers, cosmetics and diapers will be cut. We cut tariffs on 14 items, with an average percentage of over 50 percent.

Shi Yaobin:

Second, we adjusted the range of consumption tax. We will impose taxes on some high-end goods and services after eliminating categories such as small displacement motorcycles, car tires, leaded gasoline and alcohol. We will also adjust the range of cosmetic products, considering the public’s increasing need and this will be integrated with the reform of consumption tax.

Third, more duty-free stores will be opened at entry ports of Chinese borders. We will open duty-free stores at some airports first according to their passenger flows, with a higher purchasing cap for individual tourists and more categories of products. The specific plan is under discussion.

Shi Yaobin:

Fourth, we promoted easier tax refund procedures. On Jan 16, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs and State Administration of Taxation announced it would specify the rate, process and the procedure of tax rebates for foreign tourists. Now, the General Administration of Customs and State Administration of Taxation are working on implementation plans for it.

Boosting domestic demand and improving policies regarding the import and export of consumer goods are systematic projects which need many departments to coordinate. We will strive to implement the measures proposed by the State Council in the next step.

That’s all. Thank you.

NHK:

Minister Shi, Chinese tourists are buying a lot of consumer goods in Japan. Is this related to the policy adjustment?

Shi Yaobin:

I remember that in a policy briefing held here earlier this year, a Japanese reporter said Chinese citizens bought toilet covers and lots of consumer goods in Japan. Now you have raised the question again. In my view, the Chinese citizens’ consumption habits and structure have been upgrading due to their increased living standards and income. Overseas trips themselves are a method of consumption. During the trips people tend to buy some goods for themselves or as gifts for relatives and friends. Japanese products, which are well-designed and of good quality, are a good choice for tourists from around the world, including China.

The taxation policy adjustment decided at the State Council executive meeting is not targeted at any country, including Japan. The measure mainly aims to promote domestic consumption and provide convenience for Chinese consumers and to meet their diversified needs.

China Radio International:

Minister Shi, what is the target, such as in taxation, of this round of efforts? Besides, the Chinese purchase a lot abroad, do we have any new measures to attract them to spend money at home? And do we have new policies to promote domestic consumption?

Shi Yaobin:

We are not trying to get the people to spend all their money at home. It cannot be achieved. Other countries have their products, and the Chinese, like tourists from other countries, tend to buy these during their trips. It is impossible to keep all the consumption at home through policies, including taxation adjustment.

But we have a huge domestic market and strong purchasing power. The government should adopt measures to meet the diversified consumption demands brought by rising incomes of domestic consumers. The policies on taxation adjustment, trade facilitation and other aspects all serve that aim by making more products available to the domestic market. That will be good news for domestic consumers, as those who do not travel abroad can buy the things they need at home.

The policies do not aim to add revenue for the government - actually it will cut the revenue, as customs is an important part of revenue. Thank you.

China News Service:

I have a question for Vice-Commerce Minister Wang Shouwen. Traditional stores have been hit by e-commerce. How will the Ministry of Commerce implement the State Council’s policies to support their development?

Wang Shouwen:

Thank you very much for your question. The Ministry of Commerce has paid great attention to the construction of traditional stores lately. We noticed that online shopping has developed in a healthy manner and at a rapid rate, affecting store business to some extent. Therefore, the Ministry of Commerce has adopted a series of measures to support them over the past two years.

First, we organized the China Commerce Association For General Merchandise and China Chain Store & Franchise Association to research traditional stores, held seminars, analyzed the factors influencing their business, and then made proposals. Some of the proposals have been implemented and achieved impressive results.

Second, the Ministry of Commerce has been working with other departments to implement specific measures. For example, convenience stores launched inter-industry business, like catering. This allowed the stores to expand their scope of business.

Third, we guided local departments in charge of commerce to enact policies and enhance support to chain enterprises. For instance, some enterprises’ stores have solid foundations, but lag behind in informationalization (to process information into better coordination). We guided local commerce departments to help them improve this and boost competitiveness.

Fourth, there are enterprises that achieved success in both stores and informationalization. We have summarized and introduced their successful experience to lead more enterprises to realize this transformation.

Besides, we also made great efforts to improve retailing and e-commerce monitoring systems. This means a great deal for us to obtain first-hand information and take measures in response. In the future, we will strengthen analysis about stores’ business, support them and lead them to realize their transformation.

Wang Shouwen:

First, we will enhance planning. The Ministry of Commerce will start making the 13th Five-Year Plan for retailing and e-commerce industry. Second, we encourage reform in the traditional marketing model. Currently, owners of many stores and shopping malls are only renting out counters not actually involved in selling products themselves. We encourage reform in this model. For example, traditional stores could run the business by themselves or jointly with the other stores, instead of just renting out counters. Third, we encourage integration of traditional and online stores. The Ministry of Commerce now especially encourages these traditional stores to cooperate with online enterprises and e-commerce, to realize Online-To-Offline trading. With logistic delivering and e-payment, we think such integration would bring new opportunities for stores.

We will also encourage some traditional retailing enterprises to conduct inter-industry business and comprehensive services. For example, convenience stores located on large streets and small lanes are very popular. But if totally relying on selling goods, they may be hit by online stores. If they conduct inter-industry business, provide services like catering, these traditional enterprises could have a better future.

Economic Daily:

Minister Lu, currently cross-border e-commerce mainly pays tax on baggage and articles accompanying incoming passengers and personal post articles which is lower than the traditional commodity tax. Is it fair? Can you comment on it?

Furthermore, sources said that the tax on baggage and articles accompanying incoming passengers and personal articles will be raised or incorporated into the commodity tax. Is this true? Thank you.

Lu Peijun:

Cross-border e-commerce is a new form of business which is developing through the Internet.

In a general sense we can’t say what cross-border e-commerce pays is the tax on baggage and articles accompanying incoming passengers and personal postal articles.

Take the B2B commodity as an example. Commonly known as Business to Business, it is currently monitored and taxed as general imported goods which is counted in the custom trade statistics.

Only for the B2C commodities, Business to Customer, the customs collect tax on baggage and articles accompanying incoming passengers and personal post articles. In addition to this, there is another regulation. For each commodity under 1,000 yuan, the customs collect the tax on baggage and articles accompanying incoming passengers and personal post articles which, according to the official definition, is Customs Import Tariffs. For each commodity more than 1,000 yuan, the tax will be collected in accordance with commodity tax.

As to the question of raising the tax on baggage and articles accompanying incoming passengers and personal post articles and incorporating the tax within the commodity tax, most countries in the world do not separately collect tax on commodities and articles.

But there is a concept of the low-value commodity. Take the United States for instance, commodities under $200 will be exempt from tax; commodities valued between $200 and $2,500 will be taxed in accordance with simple declaration procedures.

For us, is there any possibility to incorporate the commodity tax with the article tax? As far as I know, this issue is under discussion by the departments concerned and there is no conclusion so far.

China Daily:

The Ministry of Commerce is speeding up its efforts on the development of Chinese brands. Could you give me more details on this?

Wang Shouwen:

With its reform and opening up for more than 30 years, China has become the second-largest economy in the world, and more than 200 kinds of products have become global leaders in their production scale.

In the meantime, China’s brands have embraced remarkable success. Last year, 29 Chinese brands were selected among the top 500 brands in the world. Of course, it is remarkable progress, yet when it comes to the scale and total volume of the Chinese economy, there is still a long way to go to nurture Chinese brands with quite a number of tasks to be completed. To adapt to the developing New Normal of the economy and improve the quality of economic growth, the Ministry of Commerce believe developing brands is a priority mission. Therefore, we aim to promote consumption regarding the brands and nurture China’s signature brands, prioritize shaping public service systems and boosting fair competition in the market. We have stipulated methods to promote these policies and measures, which are as follows.

Wang Shouwen:

First, establish a service platform for boosting the brands. The Ministry of Commerce has issued guidelines regarding sectors such as culinary, hotels, household services, beauty and hair salons. The piloting of a boosting system for brands has been introduced in 10 provinces, including Guangdong. Construction of public service platforms for the middle-and small-scale commercial enterprises has been initiated in 48 cities. Meanwhile, efforts to protect them have been strengthened in regard to “China’s Time-Honored Brand” and Intangible Cultural Heritage. Since 2006, there have been 1,128 brands certified as belonging to “China’s Time-Honored Brand”. Through the measures above, we have established a public service platform to boost the development of the brands.

Second, establish a service platform for promoting the brands. The Ministry of Commerce hosted a range of large-scale exhibitions, such as The China Export Commodities Fair and the China International Fair for Investment and Trade. The ministry supports the exports of famous Chinese brands, efforts by localities to host fairs of local commodities, and events such as the national roadshow of brands with special characteristics. The ministry also hosts exhibitions of Chinese brands in the United States, the European Union and Africa. The ministry energetically boosts publicity for the Chinese brands, and guides promotional events. The Chinese government does not give financial support to the brands’ promotions, and the promotion is mainly introduced by the commercial associations. Furthermore, you may have noticed that years ago, we advertised on international media such as CNN and BBC for “Made-in-China” in order to boost publicity for the Chinese brands through media platforms.

Third, establish a service platform for protecting brands. As for a brand’s success, if everyone fakes or infringes its legal rights and ignores its quality and business reputation, in the long run the brand will be destroyed. In regard to protecting the brands, the ministry has been cracking down on illegal behavior such as the infringement of intellectual properties and the production and sale of counterfeit and shoddy products, and boosted efforts in protecting integrity. We have guided the credibility of evaluating works of more than 100 business chambers or sectoral associations, and have started piloting a system that could trace the origin of meat, vegetables and traditional Chinese medicines. We explored establishing a safety tracing system for the brands to make sure “the sources could be traced, the destinations could be identified and the responsibilities could be affixed.”

Fourth, establish a public service platform for brand information. The Ministry of Commerce was behind the compilation of The Report on China’s Brand Development and relevant index as well as the release of brand reviews and consumption reviews, which are undertaken by intermediary organizations and third-party institutions such as China General Chamber of Commerce. Such information facilitates consumer choice of brands. We utilize the ministry’s urban and rural market monitoring service system and statistical system and have released more than 300,000 items of marketing information annually and compiled the development reports for brands in foreign trade. In future, the ministry will work along with relevant departments and prioritize the nurturing of Chinese brands and promoting brand values of China’s commodities, which will be an important task for developing trade and international economic cooperation.

The People’s Daily:

I would like to ask the officials from the Ministry of Finance and Ministry of Commerce a question. The prices of imported products are connected to their global pricing mechanism in addition to tariffs. How do you evaluate the scale of the influence of the latest adjustment of tariffs on imported commodities? Is there any measure to prompt the manufacturers of such commodities to be fairer in the context of the global pricing mechanism? Thank you.

Shi Yaobin:

I’ll give a brief description on the relationship between the tariff and the price. Tax certainly has an impact on prices of imported goods. In fact, for taxing, the first step to deal with imported commodities in distribution sectors is to levy value added tax (VAT), which will be undertaken by the customs. The customs will also levy consumption tax on required items. In terms for tariffs on imports, logically speaking, the more it is taxed, the higher its price. But the prices of imported commodities are finally presented in the retail sectors. The consumers purchase them for personal use, and they “feel the price” - such a price is related to taxing, but taxing is not the only factor. Just now, you have mentioned the pricing strategies among different brands and different areas, the logistics and shipment costs, the costs and fees for the commercial management of importers and retailers. As for the consumers, the final price they see is something that includes not only taxes but also the factors stated above. On the scope of influence exerted by the latest adjustment of tax, a precise number is difficult to give. I could provide a basic figure: the average cut among the 14 relevant types of tax is about 50 percent. For instance, the tax on suits, leather and fur clothing has dropped from 14-23 percent to 7-10 percent. Therefore, on an ideal basis, the final price should also be lower.

As for the impact exerted upon deferring pricing strategies among different areas, I believe Minister Wang is the ideal person to give the answer.

Wang Shouwen:

Thanks for the question from the People’s Daily Overseas Edition and the answer from Vice-Minister Shi Yaobin. Shi has explained sufficiently on the relation between taxation and price. In my opinion, the difference in price in Chinese markets and overseas markets will be narrowed. This could partly be attributed to tariff reduction.

But there are several other reasons.

First concerns the rationality of consumers. Some Chinese consumers tend to buy high-end products simply to show off, which leads to a large demand and a high price. However, an increasing number of domestic customers are less enthusiastic about high-end stuff, so the sellers have to adjust their prices.

Second involves competition. Global brands now have more access to sell in China. For example, there was no Outlet in China before. But now we have several. More competition means lower prices. This is also a benefit of China’s opening-up policy.

Third concerns the rise of some domestic brands. Some Chinese brands are of high quality, good design, have convenient maintenance arrangements, quick delivery and a more reasonable prices. Foreign sellers thus have to lower their prices.

Fourth, a new policy in the Shanghai Pilot Free Trade Zone allows for parallel-import cars, which intensifies competition and accordingly weakens the monopoly position foreign sellers hold in the Chinese market. All these measures and tariff reductions do help narrow the price discrepancy in China and foreign markets.

Reuters:

I have two questions. First, as the cut in import taxes on some consumer goods and this year’s economic slowdown will bring certain pressures to bear on fiscal revenue, will this year’s deficit be larger than estimated in the financial budget? Second, will the cut in import taxes boost imports and what other measures will the government adopt to facilitate trade?

Shi Yaobin:

Thank you for your questions, which are quite realistic. This year, China’s economy is faced with downward pressures, which come from various sources. Currently, China needs to adjust its economic structure, deal with the aftermath of stimulative measures taken before, further reform and open up, and turn to an economic growth pattern that focuses on quality and innovation.

To ensure this, China has taken the initiative to slow down its economic growth. Taking a global perspective, countries are experiencing different economic growth and recovery, which shows an increasingly obvious trend of differentiation. Countries, including the United States, Japan, as well as European countries are experiencing different levels of fluctuations in this regard. This brings downward pressure on the Chinese economy.

As fiscal revenue mainly comes from tax brought by economic growth, the economic downward pressure will undoubtedly influence China’s fiscal revenue. You just asked if the cut in import taxes will affect tax revenues. My answer is yes. However, I think this will also depend on the amount of imported products and it is dynamic. I cannot offer you a detailed figure. Therefore, the downward pressure the Chinese economy faces this year is supplementary with the structural tax reduction measures we have carried out. The latter will be conducive to expanding the economic growth of enterprises, improving their endurance capability and boosting domestic consumption. And the import tax cut will increase the number of imported goods which expands the tax base.

I think, with the economic growth and expanding imports, elements that affect tax revenues will be eased.

I don’t think this year’s deficit will be higher than the budget deficit. The Ministry of Finance and relevant ministries are working in accordance with the approved budget. I think the fiscal revenue will be better with the economy turning better and all policies are implemented.

Shi Yaobin:

As for your second question, just as Vice-Minister Wang and Vice-Minister Lu have mentioned, the measures carried out at the executive meeting of the State Council include a package of tariff reductions, adjustment of consumer tax as well as improving trade facilitation. All these measures will gradually be put into place according to reality.

All in all, the Chinese government will adopt measures accordingly to further meet the demand of domestic consumption, which include increasing imports and cultivating domestic brands. Thank you.

Bloomberg:

I have three questions. First, could you elaborate on the effect the tax cuts will have on retail sales and China’s economic growth? Second, is China considering increasing its imports of infant formula? Third, these tax cut policies may have adverse effects on Hong Kong’s retail business. Has the Chinese government considered the potential influence they will have on Hong Kong’s retail business?

Shi Yaobin:

Thank you.

I have mentioned in my answer to the questions by the reporter from Reuters that no doubt lowering tariffs will boost imports, enrich the domestic market and better meet consumer demand. But it’s hard to boil down such effects into an exact figure. It’s hard to estimate how the importers and the market will respond to the tariff cuts, which starts on June 1. This time we are lowering the tariffs on 14 kinds of imported products as an experiment, because we would like to see how the market will react.

As to the second question, I have mentioned that the tariff cuts on the 14 types of products is an experiment. We chose these products because they are closely related to everyday life. They are often on the shopping list of Chinese people who shop abroad. Tariff duties take up a large proportion of the taxes imposed on these products. Also, tariff cuts on these products will have only a small effect on domestic industries. What’s more, all the 14 kinds of products are exempt from consumption tax. This way we will better observe how the tariff cuts will affect imports.

Shi Yaobin:

It’s hard to answer your question whether infant formula will be included on the list of tariff cuts. We need to watch closely how the tariff cuts will affect the market before we move on to discuss the issue of tariff cuts on infant formula.

As to your third question, I have mentioned the reason why we chose these kinds of products. The tariff cuts do not target the market in Hong Kong. I already said this when I answered the question by the reporter from NHK, and I repeat, the tariff cuts are not against any country or region, and are not targeting any kind of product. It’s just a decision made according to the demand of Chinese consumers. It’s hard to say whether they will affect Hong Kong’s retail business or its market, as the retail business is affected by a lot of factors, such as tax, pricing strategy and distribution expenses. We need to assess the outcome of the policy after it has been implemented for a while.

China Central Television:

Mr Lu. We noticed that a series of measures on duty free shops will be unveiled. How will the public be affected when shopping? What should they keep in mind when making purchases?

Lu Peijun:

Thank you for your question. Currently there are six types of duty free shops: shops in entry and exit ports, on ships, on transportation, diplomatic shops, shops for commodities on foreign exchange and duty free shops on Hainan Island. There are about 262 such duty free shops across the country.

Generally speaking these shops operate quite well. The customs offices supervise and manage them according to relevant regulations.

This time the State Council policy plans to increase or renew duty free shops in ports of entry. There are a few duty free shops in ports of entry, mainly located in Beijing, Shanghai, Shenzhen and Zhuhai.

But as to which ports will be chosen to set up such shops will be decided by the willingness of businesses and the requirements of the layout of ports of entry. We will make a comprehensive evaluation to get the job well done. Thank you.

Hu Kaihong (host):

This is all for today’s policy briefing. Thank you all. We will meet you next time!