China Economic Watch: China Expands VAT Reform Coverage; Guangdong Corporate Earnings Hit Hard

China to Expand VAT Reform Coverage
China will expand use of a value-added tax to cover 10 more cities and provinces in another trial to boost growth and promote economic restructuring, the Wall Street Journal reported. The program, first implemented in Shanghai at the start of this year, VAT lowers the overall tax burden on certain service sectors by shifting them from a business tax levied on total revenue to a value-added tax like that already paid by manufacturers. China's cabinet said the VAT trial will be expanded to Beijing, Tianjin, Shenzhen and Xiamen, as well as the provinces of Guangdong, Jiangsu, Zhejiang, Anhui, Fujian and Hubei from August 1 until the end of the year. More areas will be added next year.

China Adamant on Ambitious Airport Plan
More than 130 of China's 180 airports reported losses and all 180 airports reported a combined profit of just ¥4.6 billion last year, according to Li Jiaxiang, director of the Civil Aviation Administration of China. Li said the government plans to build 82 new airports and expand existing ones to supplement each other for synergy and economies of scale, in response to foreign reports that questioned the need to build unnecessary airports.

Guangdong Corporate Earnings Hit Hard
Guangdong, China's largest provincial economy and exporter, saw 22.8% of its companies operating in the red in the first five months, with total losses up 105.2% year on year, according to a survey by the provincial economic planner. Sagging demand, rising costs and funding difficulties were behind the bleak conditions. Profits reaped by major industrials in Guangdong dipped 19.2% year on year in January-May; nationwide industrial profits fell 2.4% during the same period. The survey, which covered 100 of Guangdong's 500 largest firms, found 39% of respondents reporting declines in both revenue and profit between January and May.

¥700b to Invest in Xinjiang Energy Projects
The national government plans to invest ¥700 billion in resource-rich Xinjiang in the five years through 2015, according to a plan on regional development. The majority of the money will go into energy projects.

$1 = ¥6.33