CHINA is confident that new value-added tax reforms will help buoy the economy and speed up its transition to an advanced industrialized state, Vice Finance Minister Shi Yaobin said less than one week before the new measures were to be implemented.

    “This will help stabilize economic growth … and also help improve economic structures,” Shi said last week.

    Mired with a massively inefficient State sector and slowing domestic growth, China is embarking on a long and potentially painful transition away from export- and investment-based development toward a more consumer-driven model.

    According to the International Monetary Fund (IMF), China’s transition “will benefit both China and the world,” given the country’s role in global trade and finance. However, this process is not expected to be easy, as “bumps along the way could have substantial spillover effects, especially on emerging market and developing economies.”

    Since last summer Beijing has had to juggle multiple mandates including yuan stability, fiscal restraints and economic growth. China was at the center of the last two major financial market meltdowns in August and January. The country’s equity markets have experienced extreme volatility over that period, forcing the government to tighten capital controls.

    China’s economy expanded 6.7 percent annually in the first quarter, the weakest rate since the 2009 financial crisis. Growth slowed to a 25-year low of 6.9 percent in all of 2015. Growth is expected to slow further over the next two years, reaching 6.5 percent and 6.2 percent, respectively.

    Chinese growth averaged 9.9 percent annually between 1998 and 2007.

    Not everyone is convinced that China’s new tax reform will have its desired effect. Analysts at Credit Suisse argue that the new plan will have mixed results, benefiting consumer service sectors while burdening banks and construction companies with higher costs.

    The consensus seems to be that the new reforms will favor companies generating less than half a million yuan (US$78,000) in annual sales. For these companies, the tax rate will fall to 3 percnet from 5 percent. It is the labor-intensive industries that will face the biggest burden, since labor costs are non-deductible.

    In economic data, China’s manufacturing industry narrowly expanded in April after a broad-based expansion the month before, a sign the country’s factories were stabilizing after a prolonged downturn.(SD-Agencies)