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China Economy

China’s finance minister Lou Jiwei steps down, former tax chief to take role

Lou leaving as he approaches retirement age amid reshuffle among top leaders ahead of next year’s Communist Party Congress

PUBLISHED : Monday, 07 November, 2016, 12:11pm
UPDATED : Monday, 07 November, 2016, 11:10pm

Finance Minister Lou Jiwei, who has been struggling in recent years to tackle the country’s huge debt problems, is stepping down as he approaches retirement age.

He will be replaced by Xiao Jie, a former tax bureau chief who has previously suggested that the ­government has room to raise personal taxes.

The announcement was made by the Standing Committee of the National People’s Congress (NPC) on Monday.

Xiao, 59, a deputy secretary general in the State Council, worked for more than two decades in the finance ministry. He also headed the tax administration for six years.

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After US magazine Forbes listed China as the world’s second-harshest tax regime in a “tax misery” survey in 2009, Xiao, then tax chief, published a long article arguing that China’s overall tax burden was not high and had room to expand.

Xiao is taking over a position with a crucial role in guiding the future of the Chinese – and arguably the global – economy.

China is facing a larger fiscal deficit with government revenues and the country’s economy slowing. National fiscal revenue grew 5.9 per cent year on year to 12.1 trillion yuan (HK$14 trillion) in the first nine months of the year, while expenditure jumped 12.5 per cent year on year to 13.6 trillion yuan. Social security and unemployment and medical insurance as well as education expenditures all saw big increases.

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“Xiao’s top priority would be to ensure adequate fiscal revenue to guarantee the smooth proceeding of national reforms,” Cai Chang, dean of the Central University of Finance and Economics’ taxation department, said. “Real estate tax, as a pillar of the future local tax system, is a must choice and it could be accelerated during his tenure.”

A property tax, which could consolidate a variety of related taxes and fees into one, is in the pipeline, but no clear timetable has been set. Other solutions for debt-ridden local governments include levying an environmental protection tax, which is now being reviewed by the NPC.

Debt levels in the economy have surged to nearly 300 per cent of the nation’s gross domestic product, an unprecedented amount for an emerging-market country.

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Lou, 66, is known for his efforts to tidy up the country’s fragmented fiscal system and to clean up debts incurred directly or indirectly by local governments.

The last major policy ­announcement under Lou came on Friday, when the ministry said the government would not be ­liable for debts incurred by financing vehicles set up by local authorities.

China has swapped trillions of yuan worth of local government debts into bonds under Lou’s tenure. About 7.2 trillion yuan of them had been replaced by the end of September, though more, especially implicit liabilities, needed to be tackled. The official figure for total local debt was 16 trillion yuan by last year, with another 1.18 trillion yuan to be added this year.

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Lou’s legacy also includes ­value added tax reform, the biggest tax-regime change in two decades, which has generally lowered the corporate tax burden.

Lou’s retirement and Xiao’s appointment came as part of a broad ministerial reshuffle in Beijing ahead of the 19th Party Congress scheduled next fall. China’s legislature on Monday also changed ministers at the ministry of civil affairs and the ministry of national security.