Nihon Keizai Shimbun:

I have two questions. The first one is about tax. Over the past 70 years, China's tax revenue has registered a significant growth. In recent years, large-scale cuts were made to taxes and fees. Up to now, how is the implementation of policies regarding tax and fee reductions? Do you have any plans to impose broader cuts on taxes and fees? My second question is about currency. Over the past seven decades, the issuing volume of the RMB has significantly increased and the internationalization of the RMB has greatly improved. In recent years, the People's Bank of China (PBOC) has been doing research on digital currency and the world is expecting China's central bank digital currency (CBDC) to be unveiled very soon. So, do you have any detailed plan for issuing digital currency at present?

Liu Kun:

Thank you for your question on tax and fee reductions, which is our top priority to implement a proactive fiscal policy this year. In 2019, China provided tax and fee cuts on an unprecedentedly massive scale in the history of the world. We have made progress in our work in five aspects and four stages. General-benefit tax cuts for small and micro businesses were implemented on Jan. 1; and at the same time, special additional deductions from taxable personal incomes came into effect. The reform of China's value-added tax (VAT) started from April 1. We also reduced businesses' contributions to social insurance schemes from May 1, and reviewed and standardized government administrative fees and government-managed funds from July 1. It is without doubt that the reduction policies are so comprehensive that almost all taxpayers will benefit from the tax and fee cuts this year.

Judging from the results, the implementation of the reduction policies has met the projected targets, with tax reduction even surpassing the target. According to the Report on the Work of the Government, in 2019, China aims to reduce the tax burdens on and social insurance contributions of enterprises by nearly 2 trillion yuan. In the first seven months of this year, China's tax and fee cuts reached 1.35 trillion yuan. Taxes were reduced by 1.17 trillion yuan. In terms of industries, manufacturing enterprises received the lion's share and saw a reduction of 364.8 billion yuan in duties levied, which made up 31% of the total tax reduction. In terms of types of business, the private sector benefitted most from the reduction policies, saving 745 billion yuan, or 63% of the tax relief. As for the effectiveness of the tax cuts, it is the market entities and taxpayers who know the best. The policy package of the comprehensive cutting of taxes and fees implemented this year has been well received as the most direct, effective and fair incentive to enterprises.

According to a survey conducted by the National Bureau of Statistics on 311 enterprises from nine provinces and municipalities including Beijing, over 70% of the funds released by the tax cut went into research and development, technical renovation, and expanding reproduction and reinvestment. This has motivated enterprises to increase their investment into R&D. Meanwhile, cutting taxes and fees has stimulated market vitality, enhanced market confidence, and boosted the economic growth momentum. Between January-August, 19,000 new companies were registered every day on average, the investment in high-tech industries picked up and is now growing 13% year-on-year, 1.6 percentage points higher than that of the first seven months, or 1.1 percentage points higher than that in the same period a year before. The growth rate is also 7.5 percentage points higher than that of total investment. The main indicators in the first eight months showed that the Chinese economy had stayed within a reasonable range and achieved generally stable growth while making further progress. The tax and fee cuts have played an important role in this. All these achievements have proven that the major policies of tax and fee reductions made by the CPC Central Committee and the State Council follow the current trends and the will of the people, benefitting both enterprises and individuals.

Right now, you asked if we would expand the scale of tax and fee reductions. The implementation of the reduction policies is a process of dynamic adjustments and self-improvement.We will evaluate the results of these policies and make adjustments accordingly to create greater benefits. Thank you.

Yi Gang:

As for digital currency, I have something to share with you. First, the PBOC began studying digital currency in 2014. We have a digital currency research institute and a special research team, and have made positive progress in the relevant studies. We have combined the CBDC with electronic payment instruments, and developed a digital currency and electronic payment package plan.

Second, what is the future goal of developing digital currency and electronic payment? We hope the CBDC will replace part of M0, or the cash in circulation, rather than M1 or M2.

Third, the CBDC will have a double-tier framework composed of the central bank and commercial institutions, so as not to change the existing currency supply routes and system. This will stimulate the enthusiasm of the market.

Fourth, we will stick to a central management in the research and development of digital currency and electronic payment, which currently doesn't have a pre-determined route.We will select the best technology in the market through fair competition, involving not only blockchain but also new technologies that evolve from the existing electronic payments, so as to inspire proactiveness and the creativity of the market. We have also developed mechanisms compatible with the incentive mechanisms of market institutions. As for when we are launching, there is no timetable, as there have to be a series of moves from studies to tests, evaluations to risk prevention measures. Especially, if a digital currency is to be used across borders, it must also meet regulatory requirements designed to combat violations including money laundering, terrorist financing and tax evasion, "know your customers" and a series of supervisory requirements. Thank you.