How the top ten reform measures of 2014 affect ordinary people's wallets
China Economic Net editor's note: A few days ago, the State Council executive meeting once again raised domestic demand, aiming to enable ordinary people to be “able” to consume, “dare” to consume, and “willing” to consume. The prerequisite for expanding consumption is that ordinary people's “wallets” are full enough. Although this year's economic growth has “shifted gears and slowed down,” with the growth rate easing, reform has not stood still; on the contrary, the pace of reform has only grown faster, and among these reforms are policies that have made ordinary people's “wallets” fuller. As the year draws to a close, China Economic Net takes stock of this year's reform measures that have affected ordinary people's “wallets.”
1. The system for transferring agricultural land management rights
In the decision on comprehensively deepening reform adopted by the Third Plenary Session of the 18th Central Committee, regarding reform of the land system, it was proposed to establish a unified urban-rural market for construction land and to grant farmers new property rights such as the right to mortgage and guarantee land contracted management rights. According to China Economic Net data, as of the first half of 2011, the area of cultivated land under household contract management nationwide was 1.277 billion mu; as of 2010, rural collective construction land was about 250 million mu. Experts estimate that contracted cultivated land alone will leverage 1.3 trillion yuan in funds each year; and the price of rural construction land may reach as high as 130 trillion yuan. Activating land, the greatest asset of farmers, will inevitably awaken vast sleeping capital and bring boundless possibilities to farmers, rural areas, and related industries.
As early as after the Third Plenary Session of the 17th Central Committee in 2008, some localities began exploring land transfer. By the end of last year, the pilot areas for reform of the land transfer system already covered 28 regions. At the end of last month, the "Opinions on Guiding the Orderly Transfer of Rural Land Management Rights to Develop Moderately Scaled Agricultural Operations" was officially issued. This is a deeper policy on reform of the land transfer system. The opinions require further cultivating and supporting new types of agricultural operating entities, with new types of agricultural operating entities such as family farms, specialized large households, farmer cooperatives, and leading agricultural enterprises engaging in moderately scaled land operations. By then, farmers will obtain tangible benefits from the land in their hands.
2. Reform of agricultural product purchase and storage
China's protective price-support purchase and storage policy for agricultural products has been in place for nearly ten years, successively covering varieties including wheat, corn, rice, soybeans, cotton, and white sugar. Through setting a national purchase and storage price, the policy guarantees the lowest price at which farmers can sell agricultural products, protects their income, and thereby protects their enthusiasm for planting. But in recent years it has been widely criticized for distorting market prices and for chaos in implementation, and it has reached the point where it must be changed. Lou Jiwei said that China should push for the minimum purchase price and temporary purchase and storage policies to shift toward “separating price from subsidy,” and organize pilot programs for target price subsidies for soybeans and cotton.
This year's “No. 1 document” at the beginning of the year proposed that in 2014, pilot programs for target price subsidies for soybeans in Northeast China and Inner Mongolia and for cotton in Xinjiang would be launched, pilot programs for target price insurance for agricultural products such as grain and live pigs would be explored, and pilot programs for marketing loans to entities operating grain production at scale would be carried out. The minimum purchase price policy for rice and wheat and the temporary purchase and storage policies for corn, rapeseed, and sugar would continue to be implemented. Afterward, direct subsidy measures for soybeans in Northeast China and Inner Mongolia and for cotton in Xinjiang were introduced successively as pilots. The implementation plan published by the Xinjiang Autonomous Region showed that starting in September this year, the state implemented a pilot reform of the cotton target price in Xinjiang, while canceling temporary cotton purchase and storage. Of the central subsidy funds, 60% would be subsidized according to cotton planting area, and 40% according to the actual amount sold. By the end of the year, cotton growers in many areas of Xinjiang had already received direct cotton subsidy payments. Experts said the benefits of direct subsidies are obvious: previously, cotton purchase and storage enterprises profited from them, but now farmers directly profit instead.
3. Consumption tax reform
In December this year, the Ministry of Finance and the State Administration of Taxation successively issued the "Notice on Adjusting Consumption Tax Policy" and the "Notice on Raising the Consumption Tax on Refined Oil," adjusting consumption tax policy on products such as refined oil. At the same time, the Ministry of Finance also issued the "Notice on Issues Concerning the Suspension of Collection of the Refined Oil Price Adjustment Fund," standardizing the resource tax and fee system. This was China's first adjustment of the refined oil consumption tax since the 2009 refined oil tax and fee reform. It is worth noting that the current international energy supply and demand environment is relatively loose, and oil prices continue to fall. Raising the refined oil consumption tax at this time can not only help reduce pollutant emissions and promote the conservation and use of petroleum resources, but can also ensure that oil prices do not rise because of the tax increase.
Since China's consumption tax was first levied in 1994, this tax item has carried a clear orientation. When it was introduced, this tax category was mainly aimed at refined oil, tobacco, and alcohol, because refined oil is an obvious resource-based product whose consumption creates environmental pressure. Tobacco and alcohol consume too much land and water resources, and their consumption also harms consumers' health. For such goods, guidance is necessary. This time, the two departments issued three documents in succession to substantially adjust consumption tax policy, with a very clear purpose: to promote energy conservation and emissions reduction. Experts said that in the future there will be more tax adjustments targeting high-energy-consumption and high-pollution consumption items.
4. Deposit insurance system
According to statistics released by the People's Bank of China in 2013 for the first half of that year, the balance of RMB deposits exceeded one hundred trillion yuan, reaching 100.91 trillion yuan. Other data show that in May 2013, as far as personal savings were concerned, personal savings deposits at financial institutions nationwide were 44.17 trillion yuan, and personal savings per capita were 32,719 yuan. Experts said that China's savings rate is as high as 52%, which is rare in the world, and for a large economy there is no precedent in history. This shows that most of the assets of Chinese people are still deposited in banks.
Chinese residents have a relatively high propensity to save, and savings to a large extent perform a social security function. Ordinary people's wallets are mostly concentrated in the major banks, so preventing financial risks and protecting the interests of depositors has become especially important. As early as the National Financial Work Conference held in early 2007, there was a clear requirement to accelerate the establishment of a deposit insurance system. After seven years of preparation, on November 30, 2014, the central bank and the Legislative Affairs Office of the State Council publicly solicited opinions from society on the "Deposit Insurance Regulations (Draft)." The opinions stated a compensation limit of 500,000 yuan. For individual depositors, 500,000 yuan covers 80% of funds, and insurance covers all deposit-taking financial institutions. As of November 2014, more than 110 countries and regions in the world had established deposit insurance systems. Practice has proven that deposit insurance systems play an important role in protecting depositors' rights and interests, promptly preventing and resolving financial risks, and maintaining financial stability, and they have become a basic institutional arrangement in the financial industry commonly implemented by countries around the world. After the draft opinions are solicited, China's deposit insurance system is expected to be launched in January 2015, at which point ordinary people's wallets will gain another layer of protection.
5. First amendment of the Budget Law
In August this year, the ten-year revision of the Budget Law was completed, and it will take effect on January 1, 2015. Many people attach far-reaching significance to this landmark event as “the ice-breaking of a new round of fiscal and tax system reform,” and that is not excessive. China's current Budget Law was adopted on March 22, 1994 at the Second Session of the Eighth National People's Congress and took effect on January 1, 1995. This revision is the first amendment to the Budget Law 20 years after its introduction. The new Budget Law makes many provisions on budget openness, management and control, local debt management, and fiscal expenditure performance.
Improving the budget management system is one of the three key tasks required to be completed in China's top-level design plan for fiscal and tax reform——the "Overall Plan for Deepening Fiscal and Tax System Reform." The other two are improving the tax system and establishing a system in which authority and expenditure responsibility are compatible. These reforms will be introduced in 2015, basically completed in 2016, and a modern fiscal system will be basically established by 2020. The overall plan for deepening fiscal and tax system reform is an institutional development that supports the overall reform agenda and is oriented toward long-term strategic goals. It will certainly accelerate the release of reform dividends and add momentum to China's economy.