BIPP: China follows U.S. on its tax reform legislation

Yiwei Wang, Contributing Writer

The recent tax reform in the United States has not only a far reaching impact on a domestic level, but also on an international one. China, among other countries, has implemented a series of changes in its own tax code in response. In 2017, China transformed its tax system by publishing a plan on deepening the reform tax. The plan intended to improve the economy and social welfare in several sectors. For instance, the government decided to cut taxes on startups, especially in the high tech and sustainable energy industries. Additionally, it lowered the tax rate for cooperation mergers and acquisitions.

The decision to cut taxes for startups and high-tech enterprises was based on Chinese President Xi Jinping’s speech promoting Chinese tech companies around the world. China is now more connected to technology than ever. For example, the advent of WeChat, a social media platform combining aspects of Twitter and Facebook, has reshaped people’s ways of sharing life moments and spending behaviors dramatically. Innovation and creativity are two critical qualifications the Chinese government has been looking for. The tax cuts for these companies will encourage the growth of new startups, driving innovation and making the high-tech sector more competitive. Since technology improves the quality of life in a society, investing in technology means investing in a hopeful future for everyone in that society.

The tax cut for big corporations also carries profound meaning in Chinese society. Large international companies capture large market shares and play an indispensable role. The government’s decision to cut taxes for company mergers and acquisitions will inherently transform the market structure, meaning that the market will be more organized and vibrant when small companies are acquired by well-known multinational corporations. This is good news for small companies because they will have an easier time accessing cutting-edge technology by working with international companies. Thus, these companies will be able to compete in the market more efficiently and effectively. China is also working to attract and retain foreign capital in its system. Outflow of foreign assets will ultimately weaken the national currency. According to the New York Times, “the currency controls, which were tightened last year as Beijing tried to stem a tide of money leaving the country, have led to complaints from foreign companies doing business there.” Essentially, Beijing tries to slow down the outflow of the foreign capital in order to preserve the competitiveness of the market.

In conclusion, the massive tax cuts and reforms in 2017 marked a milestone of China’s tax administrative system. The country began placing priorities on developing small companies and sustainable energy. The Chinese government is increasingly focused on solving environmental issues and tackling poverty across the country by boosting its technology sector, but it is also basing its decisions off of the impacts of the recent U.S. tax reform.

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