China’s tax cuts may be able to offset the cost of trade tariffs - economist

Tax cuts could end up supporting economic growth in China, even if Beijing’s trade war with the U.S. doesn’t improve, according to the chief economist of a Chinese investment banking firm.

Earlier this month, China said its second-quarter GDP growth was 6.2%, its slowest quarterly rate in 27 years. Still, Liang Hong, chief economist of widely followed China International Capital Corporation said the government has done “enough” to support the economy.

“I think a lot of people forgot the Chinese government, this year, had launched a personal income tax cut (and) a lot of other tax cuts as well. That has supported domestic demand, particularly consumer demand,” Liang said, pointing to retail sales, which surprised the market with a 9.8% increase in June from a year ago. Analysts had expected an 8.3% rise.

The effects of the tax cuts are still feeding through the system and will add to confidence, she projected, which will be enough to offset the slowdown caused by U.S. tariffs on Chinese goods.

Most Chinese estimates put the impact of the trade war at 0.5% to a “maximum 1% of GDP,” she said. “But if we look at the tax cuts, that’s more than 1% of GDP. So if we just do a net net, that seems to be enough.”