How should China spur innovation and entrepreneurship? - Chinese Economy - Chinadaily Forum
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Post time 2018-4-26 14:50:01 |Display all floors

In addition to tax cuts, what steps can China take to spur innovation and entrepreneurship?



(China Daily) Micro businesses also will see gains, Li tells executive meeting


China will cut taxes by another 60 billion yuan ($9.5 billion) to drive innovation and entrepreneurship and boost the development of small and micro businesses, the State Council decided in an executive meeting presided over by Premier Li Keqiang on Wednesday.


The move aims to reduce the cost of innovation and entrepreneurship, energize small and micro businesses and spur job creation.


In an effort to implement blueprints set out by the Central Economic Work Conference and the Government Work Report, the annual taxable income threshold of small and micro businesses eligible for halved income tax will be raised from 500,000 to 1 million yuan. The per unit value of newly purchased R & D instruments and equipment eligible for one-time tax deductions will be raised from 1 million yuan to 5 million yuan. The two measures will be in place from Jan 1, 2018, to Dec 31, 2020.


President Xi Jinping has emphasized that we need to encourage more entities to innovate, start businesses and support innovations by small and medium-sized enterprises.


"We must work hard to cut the cost of the real economy, bring out the vitality of all market entities by lifting the discriminatory restrictions and hidden barriers in taxation and other respects, and see that all policy incentives for SMEs and micro businesses are fully delivered," Xi said.


In his Government Work Report delivered in March, Li said the government will further lighten the corporate tax burden. Far greater numbers of small, low-profit businesses will see their income tax halved and the ceilings on deductible business purchases significantly raised. The pilot preferential tax policies for venture capital investment and angel investment will be extended nationwide, he said.


One outcome of the meeting states the tax incentive enjoyed by venture capital firms and angel investors that allows 70 percent of their investment to be deducted from the taxable income of the seed and early stage high-tech startups they finance will be extended nationwide. The policy has been piloted in the country's eight innovation and reform experimental zones, including the Beijing-Tianjin-Hebei area, Shanghai and Guangdong, as well as in the Suzhou Industrial Park.


Such tax cuts will be implemented retroactively from Jan 1 for corporate income tax and from July 1 for personal income tax this year.

The State Council also decided at the meeting to abolish preclusion of expenses of commissioned overseas R & D from additional tax deduction. The time limit for the capital loss carry-over of high-tech firms and technological SMEs will be extended from 5 to 10 years pending approval by the Standing Committee of the National People's Congress. All enterprises also will see the tax deduction for their employee training costs raised to 8 percent-the same rate as high-tech companies enjoy-from the current 2.5 percent. These three measures are effective starting Jan 1 this year.


Li said that while this round of tax cuts is targeted at small and micro businesses to spur innovation, the entire economy stands to benefit. Though being the biggest job providers, small and micro businesses have long had difficulty accessing affordable financing. Supporting their development is critical to ensuring employment.


The State Council also adopted measures of stamp duty relief at the meeting for books of account starting May 1.


All the measures are expected to reduce the corporate tax burden by over 60 billion yuan. The move follows a 400 billion yuan tax cut package for 2018, which was rolled out at a State Council executive meeting on March 28.


Li said that while the well-established firms receive due attention, greater support must be extended to all growth enterprises, including SMEs and micro businesses.



"Tax cuts and fiscal input are like the two sides of a coin. Both can catalyze innovation," he said.

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Post time 2018-4-26 15:17:54 |Display all floors
Financial incentive is only a part of the equation to innovation. The other one is Research and Development. (R&D). R&D, however, takes lots of time and money and many companies are not willing to invest on this. This is where the Chinese model of state-run companies come in at an advantage.

R&D resources can be channeled and targeted to specific researches nationwide with different companies doing different researches. This will reduce the number of duplicates, which is waste of resources.

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Post time 2018-4-26 15:25:37 |Display all floors
By only relying on foreign companies to help in innovation is only good for the short term. This will only make China play catch-up but will not make China get ahead. While relying on foreign technology is necessary for now, China must also research on new technological frontier. For example, semiconductor is the leading technology for advanced chips used by many applications today. If China can find out another material that is better and faster and lead in that field, China will have a leading advantage for years to come. This should be the long term goal of China.

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Post time 2018-4-26 16:27:46 |Display all floors
huaqiao Post time: 2018-4-26 15:17
Financial incentive is only a part of the equation to innovation. The other one is Research and Deve ...
companies are not willing to invest on this. This is where the Chinese model of state-run companies come in at an advantage.


There are possible challenges with this though.

Chinese SOEs mainly operate in manufacturing, resources, and other large scale functions, and even Chinese experts agree that they are not operating very efficiently. There's too much fat in them, so to speak.

If China's SOE's move to to R&D in fields which globally belong to private industries, those flaws in SOE structures may follow to R&D as well.

Obviously this is different in very high level stuff like space industry - but even in this field, globally the development is away from state owned and into private industry. NASA vs. SpaceX is just one example.

Staying in more low level R&D, if SOE's take big part of that in China, then are they adequately capable of turning the R&D into profitable business, or in general something that benefits the people more than hurts them?

Tobacco industry in China is a good example of that. Yes, the state makes lot of revenue from that, but at cost of people's lifes. Tobacco retires lot of people from workforce earlier than they would otherwise.

Also generally speaking, for obvious reasons state owned enterprises usually have more hurdles when it comes to international co-operation, than private industries. Putting too much R&D to state owned enterprises can very well be seen as protectionist move, something that China is strongly against - at least in public speeches.

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Post time 2018-4-26 16:38:40 |Display all floors
This post was edited by zhihu1 at 2018-4-26 16:49

People

Innovation and entrepreneurship hinge on professionals, experts, talent.

For short term, instead of introducing 300,000 Filipinos who mainly work as ordinary labours, i.e. teachers of English, maids, I would say China need to introduce the talents, professionals, experts in the fields China urgently need from any foreign countries.

For long term,
- With earmarked awards, financial supports and loans, taxing cutting, the local governments should encourage Chinese enterprises sign agreements with relevant universities, colleges, institutions of scientific researches for specific projects of R&D, and for training to-be-professionals for themselves; the governments should encourage the individual innovations.

- Have the specific governmental departments nationwide to promote innovation, and serve for the small companies from policies, home and international exhibitions, etc. There should be annual specific evaluations of these officials who are responsible for.

- Solicit the wide-spread advice, suggestions from the universities, enterprises, and individuals via media from newspaper, forums in Chinese, TV programmes, hotlines.

- Hold national, international innovation competitions on TV programmes. There must be a lot of nameless inventors who don't know how to promote their inventions and knowledge. It's high time for them to show up and show off their innovation which the Chinese enterprises are eagerly looking for.


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Post time 2018-4-26 16:57:46 |Display all floors
Intellectual property highlighted ..

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Post time 2018-4-26 18:07:50 |Display all floors
zhihu1 Post time: 2018-4-26 16:38
People

Innovation and entrepreneurship hinge on professionals, experts, talent.
For short term, instead of introducing 300,000 Filipinos who mainly work as ordinary labours, i.e. teachers of English, maids, I would say China need to introduce the talents, professionals, experts in the fields China urgently need from any foreign countries.


With this I disagree.

One of China's biggest obstacle in international co-operation remains in language proficiency of its general public. Both in professional life and people-to-people exchanges, China's capability remains too much on individuals who are specifically trained as English majors or equivalent.

Most obvious recent example of this is the campaign in Beijing to clean up Englsih signature in public places.

This, for future generations, is where the thousands of Filippino English teachers come in. Eventually everybody in the country, at least in 1-2 tier cities, should be able to communite with English at least adequately. Now this is hardly true even in first tier cities, as the above mentioned project in Beijing demonstrates.

That said, I'm not convinced that simply educating youth will help with public's English skills. China is more restrictive with English speaking entertainment that is commonly available in other countries. This does not promote improving and maintaining English proficiency past graduation.

Also relatively large proportion of Chinese English majors end up working abroad or in foreign corporations. This would be different if English proficiency extended wider in the general population.

China need to introduce the talents, professionals, experts in the fields China urgently need from any foreign countries.


China has only recently introduced reforms for this - but how effective they are remains to be seen. My early observations suggest that it is a lot of noise for nothing.

Perhaps it is slightly easier to acquire permanent residence permit or 10 year visa, if you are a billionaire investor or a Nobel prize winner, but really...

Even if necessary permits had to be renewed every year, it is not so big a burden especially for high-end talents working in well staffed institutions with all the assistance they can dream of.

Secondly, making visa runs easier does nothing to make China as a society more inviting toward foreign talents. Obvious challenges with daily life and political system remain. And I don't mean that foreigners should be able to run for China's president, but for example access to foreign internet services that is blocked for political reasons. State security and social stability, I know...

This will only increase in future, because future talents have grown with these services - unlike older generation who didn't even have cellphones in their youth.

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