The People's Republic of China and ADB: Changing Asia

Video | 24 November 2015

The Vice Finance Minister of the People's Republic of China and ADB Alternate Governor, Shi Yaobin, discusses his country's relationship with ADB, how tax reforms will benefit the Chinese economy and reduce inequality, and how local government debt is being brought under control.

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Title: The People's Republic of China and ADB

Description: The Vice Finance Minister of the People's Republic of China and ADB Alternate Governor, Shi Yaobin, discusses his country's relationship with ADB, how tax reforms will benefit the Chinese economy and reduce inequality, and how local government debt is being brought under control.

Shi Yaobin
Vice Minister of Finance
People’s Republic of China

Q: As the People’s Republic of China moves towards high income status what will be its relationship with multilateral financing institutions like the ADB?
A: For the growth GDP, China is the second largest economy in the world but for the per capita GDP, China is quite in an undeveloped situation. For this reason and from the beginning of the Chinese reform under the Chinese economic development, the international financial institutions gave China a lot of help. ADB for more than 30 years gave China loans, lending, and also technology assistance and knowledge sharing, experience and modern management knowledge that gave much help to push China to reform its economic development. So, even if we think that China is the second largest economy in the world, we still need to cooperate with the ADB and also with other international financial institutions in the world because as I said there are many poor people now living under the poverty line. Even the Chinese in the development areas such as the eastern part of China still need to learn from different countries and different international financial institutions to learn how to develop our economy, how to improve our social system, how to balance economic development with environmental protection and how to balance the gap between the wealthy people and the poor people. There are many things we need to learn - get experience, get knowledge from different parts of the international financial institutions and we still need lending to put into infrastructure, education, health care, and some other areas so we need to strengthen our cooperation between ADB and the Chinese government and the Chinese society.

Q: What impact will tax reforms have on economic and social development in PRC?
A: For China, we are going to implement a comprehensive taxation system reform that mainly focuses on several aspects. First, we want to reform the present value-added tax system into a totally consumption based value-added tax because in this moment, the Chinese value-added tax system is not a totally consumption based value added tax. The value-added tax now is based on the whole tax revenue in China, so we have to reform and streamline.

The second aspect about the taxation system reform is we want to improve the consumption tax. In China, there is a tax type we call the consumption tax. The consumption tax is only focused on modern categories of goods and now we want to improve the consumption tax system. We want to transfer the adjustment of the taxpayer. We want to enlarge the consumption tax.

Third, we want to make the taxation reform about the resource and the environment protection tax, because the resource is very precious and the environment protection is a key point for every country’s development. We want to use the taxation system to protect the environment and to save resources in the production and people’s ordinary activities.

Fourth, we want to reform the personal income tax. Now, the personal income tax we call the categories income tax. Our target for the personal income tax is to transfer the category based personal income tax into a comprehensive and with category personal income tax so that the personal income tax can play a fair function to adjust the gap between the wealthy people and the poor people.

Fifth, we want to reform the property tax. In China now, we have land yield tax and house tax. We want to combine the two taxes into one and we call it the property tax, so that the property tax can adjust the property accumulated in different types of processes. The aim to make the society fairer and to get enough tax revenue to help the poor people in their housing and house care.

Sixth, we want to improve the local government tax system. Local government in different parts of China: the eastern, central, western; the development level varies. The eastern part of China, we call the developmental provinces; but in the central and the western provinces, we call them the developing provinces so we want to reform the local taxation system to balance the different parts of provinces development levels to get a fair development from different parts of the government.

As for the taxation reform, what’s the impact of economic development? That is what we are going to raise, the target to foster the economic development, fair income distribution, and to strengthen the governance for the tax administration and collection, and also, we want to reach the target. The tax administration should help the economic development and not stop the economic development and also social development.

Q: What measures are being taken to prevent local government debt becoming a challenge to growth in the years ahead?
A: In January, the central government will take two big parts of matters to control and manage the local government debt. One is for the legislation because last year China passed the budget law. The budget law is the government budget law. In the budget law, all the local government debt has to be put in the government budget management that means the local government debt since the budget law has been implemented the local government debt has to be managed under the budget law. This is a law, this is not a regulation. Every year the People’s congress has to approve the local government debt, the scale of local government debt, and the government has to mobilize local government debt and manage it according to what has been approved by the People’s congress.

Another part of that is some policy merit for the local government debt management. For this year, 2015, the People’s congress has approved ¥16 trillion for this year’s local government debt so this means all government debt, including every level of the local governments all its debts have to be controlled and/or not exceed the ¥16 trillion, this is the second merit.

Another policy matter that last month, the Chinese government - that means the Ministry of Finance approved the ¥3.2 trillion to substitute the local government debt. That means that local government can issue bonds called TAC data bonds to the bank and those bonds can only be used to substitute the local government debt. The deal in this year, so the local government debt can be controlled efficiently and accurately to alleviate the burden of the government debt. In the future, the next year or the next several years, all the local government debt – if the government wants to issue bonds to mobilize it to put into different parts of TAC data of the government systems so the People’s congress, the central government and all the upper level government has to supervise, approve and lower the government debt so that local government debt can be efficiently controlled and managed. I don’t think in China, in the future, there will be a local crisis for the local government debt.