Gao Qiang: Finance should Give Play to A Greater Role in Revitalizing the Real Economy

How to change from “big” to “strong”, from“manufacturing” to “creation” and to realize a leap of the real economyrequires financial support, and also relies on a whole set of combined measuresto coordinate action.

The real economy is known the foundation ofnational economic development. And in the report of the 19th National Congressof the Communist Party of China, it is clearly pointed out that it is necessaryto focus on the real economy for economic development, take improving thequality of the supply system as the main direction, and significantly enhancethe quality advantage of China’s economy in order to construct a moderneconomic system.

Atpresent, the development of China’s real economy is facing some difficulties.The reasons come from various aspects including unavoidable problems ineconomic transformation, shortcomings of the enterprises themselves, domesticreasons and also changes in the international economic environment. And fiscalpolicy should give play to a greater role in solving the problems existing incurrent real economy.

China’s real economy hasnot been fully “revitalized”

The so-called real economy refers to a series ofeconomic activities such as material production, circulation, consumption andservice, mainly including industry, agriculture, commercial service industry andcultural industry. In short, all economic activities that provide consumerswith products or services, that is, “money from materials”, belong to realeconomy. In contrast to the real economy, it is the so-called virtual economy,including financial, securities, lottery, collection and other activities thatdo not provide products or consumer services, that is, “money from money”,belong to the virtual economy. A special example is real estate, which has theelements of both real economy and virtual economy. Construction, sales,property services, etc., belong to the real economy, but the premise is that“houses are used for living”. Once houses are “used for speculation” and becomethe activity of “money from house”, it will not belong to the real economy.

Characterized as wide scope, the real economy isdifferent from the three industries of national economic statistics in terms ofstatistic caliber, and there is no accurate statistics on the proportion ofreal economy to GDP. However, China is known the largest country in terms ofmanufacturing and international trade, all of which rely on the support of thereal economy, so the scale of China’s real economy should be the largest in theworld.

Over 40 years of reform and opening up, the realeconomy in China has made great progress and achieved remarkable results, butit has not fully realized “revitalization”. The most important sign is thatChina is only a manufacturing big country, not a manufacturing power, nor acreating power. Although we have made breakthroughs in some core technologyareas, we are still not strong in scientific and technological innovation, andwe are still dependent on foreign technologies.

The implementation of positive fiscal policy needs to deal well with threerelationships

To realize the revitalization of the realeconomy, the support of fiscal policy is essential. For many years, China hasbeen carrying out a positive fiscal policy to support the revitalization of thereal economy and promote the economic development of the whole country. But,what needs to be considered is that the previous positive fiscal policy basicallytook the increase of fiscal expenditure and expansion of fiscal deficit as tools,and the implementation of key infrastructure construction projects as path topromote economic development.

The main embodiment of positive fiscal policy isin the increase of fiscal expenditure, however, for the adjustment of fiscaland tax policies to support the development of key industries and emergingscience and technology industries, and to promote the revitalization of thereal economy, the application of strength of positive fiscal policy is notenough. In the future, it is necessary to implement a positive fiscal policy byclosely combining the two means of tax cuts and fee reductions and increase ofgovernment expenditure, and changing from focusing on the increase ofgovernment investment to focusing on the increase of both government investmentand enterprise investment. In the process of implementing the positive fiscalpolicy, it is necessary to deal well with the three major relationships.

Firstly, the relationship between quantity andquality. Over the years, the positive fiscal policy we implemented previouslyoften simply focused on cutting taxes and reducing fees or increasing thequantity of expenditures. The proposal to cut taxes and reduce fees by RMB 2trillion in this year is a quantitative concept. Of course, quantity isessential, for there will be no quality without quantity. However, if there isonly quantity and the quality of policy implementation is ignored, it will bealso difficult to achieve the desired effect. The so-called quality of policy implementationdepends on the aspects, goals and achievements of the implementation of taxcuts and fee reductions or expenditure increase.

Inimplementing the policy of tax cuts and fee reductions of RMB 2 trillion, it isrequired to make clear which enterprises will benefit from it, what problemsare to be solved, and how will the beneficiary enterprises use these funds,which needs to be paid attention to. If the policy of tax cuts and feereductions is implemented in the real economy and in the scientific andtechnological innovation enterprises, and the enterprises will use it forinvestment or innovation, the quality of the policy will be relatively high; ifthe policy is implemented in all enterprises without clear distinction betweenthe primary and the secondary, and even the virtual economy will enjoypreferential policies, then the quality of the policy will be seriouslyaffected.

Secondly, the relationship between performanceand effectiveness. The current standard measuring the implementation ofpositive fiscal policy relies only on whether the tax reduction policy can berealized or whether the expenditure funds can be allocated. If these have beendone successfully, it will be judged that the policy has been implemented andhighly praise will be given. But this is only the first step to implement thefiscal and tax policies, which is only the so-called “performance” rather than“effectiveness”. Taking the tax cuts and fee reductions as an example, when taxrate reduction, and indexes for tax cuts and fee reductions are implemented,the finance and taxation departments only have achieved “performance”, while itis required to pay more attention to “effectiveness”, that is, the actualeffect of tax cuts and fee reductions, and to find out whether the policy of taxcuts and fee reductions has improved the business environment of enterprises,alleviated the actual difficulties of enterprises, improved the livingstandards, and promoted economic development.

At present, in our assessment work, there arerequirements and indicators for “performance”, but there are only requirementsbut no indicators for “effectiveness”. Even though the target of tax cuts andfee reductions by RMB 2 trillion has been achieved this year, it is stilldifficult to measure its effect, which must be improved. Only when every pennyused, every word said, everything done by financial departments, and everypolicy implemented has a clear measurement standard of “performance” and“effectiveness”, can we truly achieve the goal of promoting the revitalizationof the real economy.

Thirdly, The relationship between current andlong term development. As an old saying goes, “alter what is changeable, andaccept what is immutable”, it is known that government officials have fixedtenures, and our country will always exist and continue to develop. Therefore,in formulating and implementing fiscal policies, we should not only look at thepresent, but also consider the long term. The implementation of positive fiscalpolicy also needs to consider the situation of government increasing debts andcumulative financial risks; If the government takes up too much of the bankfunds, it will affect the financing of enterprises, cause the problems ofdifficult financing and expensive financing, and make the transformation andupgrading of enterprises difficult. In a word, while implementing positivefiscal and tax policies to revitalize the real economy, it is required to notonly consider the importance and necessity of reducing revenue and increasingexpenditure to promote the development of enterprises, but also avoid systemicrisks of government debts.

The revitalization ofthe real economy cannot simply rely on tax cuts and fee reductions

When issuing fiscal and tax policies torevitalize the real economy, it is essential to also clarify two issues.

Firstly, the revitalization of thereal economy cannot simply rely on tax cuts and fee reductions, but also needsto promote the reform of the tax system. For many years, China’s tax system ismainly based on indirect tax, supplemented by direct tax, of which the indirecttax is only paid by enterprises firstly, and then borne by consumers throughprice. Therefore, only direct tax is the real burden of enterprises. In theory,the reduction of enterprise burden should focus on income tax reduction,instead of value added tax reduction. However, due to the small amount anduneven distribution of income tax, it is difficult to play a role in reducingthe tax burden of enterprises. Therefore, in the long run, in terms offinancial support for the revitalization of the real economy, it is also neededto accelerate the reform of the tax system, and change the indirect tax as themain tax to direct tax as the main tax.

Secondly, the revitalization of thereal economy cannot simply rely on financial and tax support, but should alsorely on the spirit of innovation and hard work of enterprises. Fiscal and taxpolicies can only solve the problem of enterprise funds, while therevitalization of the real economy cannot simply rely on money, but also on thehard work and innovation of enterprises. The truly successful enterprises inthe world do not simply rely on the support of the government, but on theexploration, innovation, struggle and hard work of enterprises. In a word,financial and tax support is necessary, but enterprises cannot form thethinking of simply relying on financial support.

In a word, the revitalization of the realeconomy is a major issue faced by the country at present. At present, ourcountry is in the stage of “big but not strong”. How to change from “big” to“strong”, from “manufacturing” to “creating” and to realize a leap of the realeconomy requires both financial support and a whole set of combined measures tocoordinate actions. At present, facing the fourth industrial revolution in theworld, we should keep up with the world trend, occupy the highest technologicalpoint in the world, and firmly hold the initiative in our own hands especiallyin key technology areas. While this requires long-term exploration, innovation,tackling key problems, and overcoming difficulties, as well as great financialand tax support. However, the key to revitalizing the real economy lies in theself-confidence, enterprising spirit and professional ambition of enterprisesand researchers, who are the “heart and backbone” of the development of China’sreal economy.