Bank Report Says Chinese Economic Growth Is Dependent On Tax Reforms

by Mary Swire, Tax-News.com, Hong kong

14 December 2001

According to a report from leading global bank ABN Amro on the Chinese economy, there is an urgent need for the government to introduce more tax reforms to steer China away from financial disaster. In particular, ABN Amro recommends that the national tax structure be overhauled and there should be a sharp reduction in spending on public infrastructure.

The bank stated: 'We believe the government can afford its current pro-active fiscal policy. But economic growth largely driven by government infrastructure spending will not be the optimal path for China's economic development.'

ABN Amro also said that China will have to overhaul its tax structure now it has become a member of the World Trade Organisation (WTO) as it will be obliged to bring its tax system into line with other member nations. 'Tax and fee reforms have long been on the central government's agenda. China's WTO accession will probably speed up the implementation,' wrote the bank.

'Ultimately,' ABN Amro claimed, 'China needs a clear and transparent taxation system, which is able to optimise the distribution of income between the government (central and local government) and individuals. A tax cut will probably reduce revenue but will also enhance domestic demand and create investment opportunity for the private sector, which in turn will increase future tax revenue.'

ABN Amro has operations throughout China with branches in Beijing, Hong Kong, Shanghai and Shenzhen and representative offices in Guangzhou, Tianjin and Wuhan. The Bank was named 'China Loan House of the Year, 1999' by IFR Asia and in 1998 the 'Best Foreign Commercial Bank in China' by Finance Asia.

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