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Job creation is 'top priority' for Beijing

Publication Date : 07-03-2014

 

Job creation is China's top priority, more important even than hitting this year's GDP growth target of 7.5 per cent, its finance minister said.

"If we were to say the economy grew this year… at 7.3 per cent, 7.2 per cent, would it still count as 'around 7.5 per cent'? Yes it can," Lou Jiwei told a press conference yesterday.

His comments echo those of Premier Li Keqiang, who downplayed the GDP growth target while unveiling a goal on Wednesday to create at least 10 million new urban jobs this year. Registered urban unemployment would be also kept below the 4.6 per cent mark.

In his annual report delivered at the opening of China's parliamentary meetings, Li stressed the government's priority in creating enough jobs for the urban population as well as the millions of rural residents set to move into cities in coming years.

Over seven million fresh college graduates will seek jobs in the coming months in a slowing economy. Meanwhile, China's vast manufacturing sector appears to be slowing its hiring, with a sub-index for employment in factories hitting the lowest level in February since the global financial crisis in March 2009.

Lou implied that Beijing is setting its sights even higher than the official jobs target, which must be met - and even exceeded.

"Can we achieve 13 million (jobs)? This is highly possible," he said, highlighting small enterprises and the services sector as key contributors to jobs creation last year.

The services industry, which contributed to 46 per cent of GDP growth last year, surpassed the manufacturing sector for the first time and was a key generator of jobs, he explained.

Li's government is pushing reforms to shift the world's No.2 economy towards services and high-tech industries, rather than exports and state investment.

Downplaying the importance of fast growth could also focus local governments' energies on Li's efforts to improve people's livelihoods and close a yawning income gap.

Besides promising to "declare war on poverty", the top leadership has indicated that taxes will become more progressive over time. China's Gini coefficient - a measure of income inequality in a country - rose to 0.473 this year, not much different from 0.474 last year.

According to the United Nations, a country with a reading higher than 0.4 has a heightened risk of social conflict.

China could revise its individual income tax regime - in particular, exempting more lower-income people from taxes as the cost of living climbs in China - after some Chinese legislators recently called for a review.

Beijing is studying how to adjust individual income tax policies to ensure more equitable income distribution, Lou acknowledged yesterday.

But he stressed that "simply raising the income tax exemption floor of 3,500 yuan (US$572.04) would not be fair".

Such a blanket rule would not take into account household expenditure.

"A person who earns 5,000 yuan ($817)...may live quite well, but a person who has to raise a child on 5,000 yuan will face difficulties," he explained.

So the next step for Beijing is to create an income tax regime that takes into account each household's basic expenditure as a proportion of their earnings.

Factors to consider would include how many family members the tax-payer supports, education loans and mortgage burdens on their homes.

Meanwhile, Beijing has been gradually revising its consumption taxes to shift the tax burden to the more affluent, starting with levies on luxury goods.

 

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