Companies call for further cost cuts: study

Updated 2017-08-04 11:59:54 Global Times

Most companies in China's real economy are eager to cut costs, and Northeast China still lacks competition edge compared with other regions, a latest survey released by the Chinese Academy of Fiscal Sciences showed.

The survey found that 80 percent of the enterprises want more tax cuts, and more than half want lower financing costs.

In 2016, enterprises' costs in land and house rental, power consumption and employee compensation rose 9.7 percent, 2.9 percent and 6.8 percent respectively, the survey found.

In terms of regions, Northeast China fared badly reflected from land and power costs rising comparatively slowly.

In 2016, western China witnessed the fastest growth rate of land and house rentals, with a 43.8 percent year-on-year increase. In comparison, the northeast part of China only recorded a 0.92 percent gain, the survey noted, indicating the underperformance of the local real economy.

In addition, enterprises in the Northeast had the highest ratio of liabilities, reaching 69.34 percent in 2016 and rising for a second consecutive year since 2014, while enterprises from Central China had the lowest ratio of liabilities of 56.07 percent, according to the survey.

"The economic turnaround of the Northeast is not likely to occur in the next five years due to such factors as geopolitics, the burden of its role as a traditional heavy industrial base and the difficulty of reform for the local governments," Tian Yun, director of the research center at the China Society of Macroeconomics, told the Global Times on Thursday.

The tax burden of real-economy enterprises fell in 2016, the survey said, and costs for financing, employee compensation, power, land and logistics were also alleviated to different degrees.

The ratio of surveyed enterprises' total tax to their revenues slid to 5.14 percent in 2016, down 0.18 percentage point from 2014, it showed, with 60 percent reporting a ratio below 5 percent.

The ratio in the eastern region tended to be the lowest, while that of the western region was the highest, but the situation improved a lot for the western region, the report said.

The mild increase for enterprises' costs proved the effectiveness of the implementation of the work plan on reducing real-economy costs released by the State Council, the country's cabinet, in August 2016.

An expert said that it's obvious that the development of China's real economy has entered the high-cost period.

"The ascent in personnel and environmental costs is an inevitable trend," Liang Jun, a research fellow at the Guangdong Academy of Social Sciences, told the Global Times on Thursday.

However, he said, "the sample enterprises should have been classified according to their growth nature."

For example, some enterprises that are positioned at the downstream of the industrial value chain with more cost could have been eliminated, he noted.

Liang said that unreasonable business costs that reflect government administration such as inspections and approvals should be reduced.

The policy on enterprise cost reduction should be combined with the benefits of government, enterprises and society, pursuing sustainable and sound development for enterprises in the long term, the survey indicated.

The survey also pointed to uncertainty and the potential risks of economic development due to the high leverage ratio of the real economy.

"Enterprises' leverage ratios are steadily declining, in particular in the private sector," Tian said, noting that the ratio should be kept well under control for State-owned enterprises.

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