Tariff cuts start reform rolling

PUBLISHED : Tuesday, 03 April, 2012, 12:00am
UPDATED : Tuesday, 03 April, 2012, 12:00am


The need for China to change tack to put its economic growth on a sustainable course is a given. But rhetoric will not make it happen. Now the central government has been as good as its word, with a decision to cut tariffs that flags a start on restructuring the economy. When Premier Wen Jiabao told the National People's Congress earlier this month that the country's growth target had been cut to reduce dependence on a growth model led by exports and capital investment, he said the government's first priority this year was to boost consumer demand - the key to sustainable growth.

Tariff cuts announced by the State Council on a range of items from energy and raw materials to consumer goods to advanced machinery parts are designed to boost imports and domestic consumption. Ministry of Commerce sources cited by Xinhua say candidates for lower tariffs include consumer staples like meat and dairy products, as well as clothing and apparel. The government will also encourage the finance sector to support imports with trade finance and insurance.

Initially the tariff cuts will be temporary and are likely to be modest. Beijing's caution is understandable. Some officials oppose import tax cuts because they fear harm to national industries. And with the country approaching a generational change of political leadership, the economic focus is on ensuring a gradual adjustment, since a hard economic landing at this time could be socially destabilising.

Double-digit growth rates driven by external demand and capital investment cannot be sustained forever. Mixed signals of recovery in the United States and debt woes in Europe - China's biggest customer - have added urgency to the issue. China can no longer ignore the need for another engine of growth - domestic consumption. Economic restructuring may be seen as a threat in official and business circles with a vested interest in the status quo. For the sake of China's and the world's economy in the long term, they must not be allowed to stand in the way of restructuring.