Economic impact of Corona virus and Chinese government measures to support businesses

This article will be continuously updated to represent current events, and has last been updated on 24-06-2020 at 16:57.

At this moment, China and the rest of world are facing the consequences of an outbreak of the Corona-virus. With 85,098 infected and 4,647 resulting deaths in China as of June 24, and with almost 10 million infected worldwide, it is clear that the virus has a large impact on the country and the world. The Chinese government took drastic measures to prevent the spread of the virus by extending the Chinese New Year holiday until the 2nd February, with the majority of local authorities disallowing non-essential companies to resume work before February 10.

These reduced activities are likely not the only negative effect business will experience in relation to the outbreak, but companies in- and outside China will likely  experience economic, social and political consequences.

The economic consequences of the current outbreak are often compared with the SARS outbreak in 2003. However, it is important to note that in 2003 the Chinese economy was less developed and less reliant on services, and was arguably in a stronger position than it is now. During the SARS outbreak, the economic growth in the second quarter slowed to 9.1% before bouncing back to 10% in the third quarter. The government made a speedy recovery by increasing manufacturing, and such a recovery may be more difficult to realize this time. Moreover, the Coronavirus outbreak has seen a much higher number of infections and deaths and a much wider spread worldwide, so the economic impact will arguably be much larger. The year-on-year change in GDP in the first quarter was -6.8%. This is the first negative GDP growth since the Chinese government started publishing official GDP data in 1992. Therefore, the government decided to abandon the yearly growth target and focus on recovery and employment.

In the remainder of this article, we will provide an overview of government policies and directives which have been enacted to support businesses and the Chinese economy as a whole. Firstly, the article will provide an overview of general policies and directives from the Central government, and subsequently we will further enumerate how these policies are implemented locally at the provincial-, municipal- or city-levels. Please note this article will be continuously updated in order to reflect the latest developments.

Central Government policies to support businesses

As a result of the outbreak of the novel Coronavirus, the Chinese government has implemented various strict measures to prevent further spread of the virus. Some of these measures severely hamper the business activities of companies, with especially SMEs heavily affected. Certain industries, such as the transportation, catering, accommodation and tourism sectors, are relatively hard hit as well.

To support businesses through this difficult time, the government, both on the local and national level, has implemented several measures to support businesses and the economy. Below we provide an overview of the general measures and guidelines provided by the Central government.

1. Extending Tax Filing Deadline

China’s State Administration for Taxation extended the tax filing deadline for the month of January from February 17 originally to February 24, but later to February 27, as an acknowledgement for the difficulties which companies may experience due to prevention and control measures introduced to manage the outbreak of the coronavirus, including notably the extension of the CNY holiday.
The tax filing deadline for the month of February has been extended from March 16 to March 23 and the tax filing deadline for the month of March has been extended from April 20 to April 24.

2. Social insurance premium calculation shifted

This year the adjustment of the social security payment base has been postponed from 1st April to 1st July 2020, meaning that the contribution to social security for both employers and employees for this period is based on the old contribution base. This means an effective reduction of the social security contribution burden.

3. Exemption and reduction of social insurance payments

From February to June all SMEs outside of Hubei Province are exempted from paying the company’s pension-, unemployment insurance- and work injury insurance contributions. Contributions for the above three expenses are halved for large enterprises outside of Hubei from February to April. All companies in Hubei Province are exempt from February to June for all of the social insurance contributions.
Moreover, before the end of June, enterprises can apply for delaying payment to the housing provident fund. During this period, the provident fund loans that the employees fail to repay, due to the impact of the epidemic, will not be treated as overdue.
The government will ensure that people entitled to payments from the above social insurances will not be affected by this policy and that payments for social securities will be paid in full and on time.

According to the Work Report all these measures have been extended until the end of 2020.

4. Exemption and reduction of VAT rate for small-scale taxpayers

For 3 months, from March 1st to end of May, all small-scale taxpayers in Hubei province will be exempt from VAT. All small-scale taxpayers in the rest of country will have a reduction in the VAT collection rate from 3% to 1%.

According to the Work Report all these measures have been extended until the end of 2020.

5. Increase in losses carry over period

The longest carry-over period for losses incurred by enterprises in difficult industries, including transportation, catering, accommodation and tourism, affected by the epidemic in 2020 is extended from 5 to 8 years.

6. Additional funds for financial institutions

Using the role of a structural monetary policy tool, the People’s Bank of China has specially arranged a special loan of 300 billion yuan to support financial institutions in providing preferential interest rate loans to key enterprises for epidemic prevention and control.

7. Financing support

Local governments and financial institutions should support SMEs with emergency financing. The government has made available funds to local governments and financial institutions to provide loans to businesses. Moreover, corporate financing and guarantee fee rates have been decreased.

8. VAT exemption

Taxpayers that are providing public transport services, living services and express delivery services for residents shall be exempted from VAT as of January 1st onward. It is important to elaborate that living services include cultural and sports services, education and medical services, tourism and entertainment services, and catering and accommodation services.

It is important to note that applying for this VAT exemption is also dependent on the company’s clients. In practice, there are certain requirements stipulated by the tax authorities which must be followed:

• No VAT special fapiao shall be issued, only VAT general fapiaos.
• When issuing a VAT invoice, select “tax exemption” as the tax rate.

In case fapiaos were issued in January, this income can be exempted from VAT if:

• If issued VAT special fapiaos by the taxpayer can be changed to a VAT general fapiao, it can be exempted from VAT. Alternatively, if it cannot be changed, this fapiao will not be exempted from VAT.

According to the Work Report all these measures have been extended until the end of 2020.

Local Government policies to support businesses

It is important to note that local government authorities are responsible for the further implementation of the guidelines and directives from the Central government, and this implementation may vary depending on the locality. Therefore, we advise all businesses to keep an eye on announcements from their local provincial-, municipal- or city-level authorities. To find a complete bullet-point overview of key measures by several important localities in China, see the end of the article. Below we provide a summary of the measures many of the local authorities offer:

– Rent compensation

Depending on the local authorities, SMEs that rent from state-owned real estate companies will be exempt from rent for 0.5 to 3 months. Private real estate companies are encouraged to do the same.

– Deferred tax payments

SMEs can apply for deferring of tax payments up to 3 months depending on the local government.

– Refund of unemployment insurance payments

If SMEs minimize layoffs, most local governments offer a percentage of refunds for the paid unemployment insurance contributions over 2019 or 2020.

– Lower General Costs

Several regions have lowered electricity prices and suspended administrative charges, such as sewage treatment fees and road occupation fees, among others.

– Reduction or exemption of real estate and urban land use taxes

Companies that have difficulties paying real estate and urban land use taxes can apply for reduction or exemption in several regions.

Our Thoughts

It is clear that the outbreak of the novel Coronavirus will have an impact on China and the world alike. It is to be expected that more updates with measures and directives to support the economy will follow on both a local and central level, and we will keep you informed by continuously updating this article. As mentioned above, you can find a complete overview of specific measures by local governments in selected regions.

If you have any questions about the impact of the outbreak of the Coronavirus for your business, or if you require more information or need support with applying for above mentioned measures, contact us at [email protected].

Government support measures in selected regions

Beijing government

• If SMEs rent real estate of state-owned enterprises in the city to engage in production and operation activities, and insist on business operation according to the requirements of the government, or close down according to the epidemic prevention regulations without layoffs or fewer layoffs, the rent in February will be exempted. If the rental is for office use, 50% of the rent in February will be given a reduction. Private landlords are encouraged to offer rent reduction or exemption as well and can receive subsidies for this.
• Several administrative charges have been suspended for SMEs, including special equipment inspection fees, sewage treatment fees, and road occupation fees.
• SMEs can apply for deferred tax payments up to a maximum of 3 months.
• The social security payment base adjustment is postponed until August for companies in the severely impacted industries, including transportation, catering, accommodation and tourism.
• The city’s comprehensive financing cost, interest rates for SMEs and guarantee fee rates have been lowered and financing processes have been simplified.

Shanghai government

• The Shanghai government will return 50% of the total unemployment insurance premiums paid in 2019 to companies that keep layoffs to a minimum.
• Companies can make a supplementary payment of social security fees three months after the epidemic ends. No overdue fine will be charged. Employees’ payment record for social security will not be affected by belated payments.*
• For local companies which have organized online vocational training during the epidemic, 95 percent of training fees will be subsidized by the districts where the companies are based.
• SMEs renting operating real estate of state-owned enterprises in the city to engage in production and operation activities, will be exempted from February and March rents. Private real estate owners are encouraged to reduce rents for tenants and can subsequently apply for reduction or exemption of real estate and urban land use taxes.
• SMEs can apply for deferred tax payment, and those who meet the conditions shall be permitted according to law to defer tax payment with a maximum period not exceeding 3 months.
• Taxpayers who fail to report and pay taxes due to the impact of the epidemic can be exempted from late fees and tax administrative penalties upon confirmation by the competent tax authority.
• Key enterprises supporting epidemic prevention and control during the Spring Festival can apply for a subsidy of RMB 1,500 per employee up to a maximum of RMB 5 Million per company.
• Enterprises in difficult industries that have no or fewer layoffs can receive a subsidy of RMB 800 per employee up to a maximum of RMB 5 Million per company.

Guangdong government

• Enterprises will be allowed to defer tax declarations during the epidemic prevention and control period. For enterprises that meet the conditions for deferred tax payment, the tax payment period shall be delayed by no more than three months.
• For enterprises that really have difficulty in paying taxes, real estate tax and urban land use tax shall be reduced or exempted according to law.
• SMEs renting from state-owned enterprises will be exempt for two months of rent (exact implementation can differ per city). Private property owners are encouraged to reduce the rent appropriately according to the actual situation. Enterprises extending rent exemptions for more than two months shall be granted a reduction or exemption of real estate tax according to the number of rent-free months.

Zhejiang government

• Enterprises that lease state-owned asset-type operating real estate that engage in production and operation activities are exempt from rent for two months in February and March. Private landlords are encouraged to reduce or exempt the rent for the tenant. Priority will be given to policy support for various types of carriers such as development zones and industrial parks that reduce or exempt rents.
• Enterprises affected by the epidemic that have difficulty in paying real estate tax and urban land use tax may apply for reduction or exemption.
• During the epidemic prevention and control period, enterprises are allowed to defer tax declaration. For enterprises that do have special difficulties and cannot pay their taxes on time, the enterprises shall apply for deferred payment of taxes in accordance with the law, up to a maximum of 3 months.

Tianjin government

• The government will repay 50% of the total unemployment insurance premiums actually paid by the company in 2019 if there is no layoff or the layoff rate during the epidemic is lower than the city’s registered unemployment rate in the previous year.
• Enterprises that have leased various state-owned assets for operating houses, starting from February 1, 2020, three months of rent will be waived, and three months of rent will be halved. Private real estate owners are encouraged to reduce or exempt the rent for the tenants.

Chongqing government

• For those who meet the conditions for deferred tax payment, deferred tax payment shall be permitted according to law, with a maximum period not exceeding 3 months.
• For enterprises affected by the epidemic, the collection period of endowment insurance, unemployment insurance and work injury insurance premiums payable in the first quarter of 2020 can be extended to the end of April. During the late payment period, no late payment will be charged.*
• For the companies that minimize layoffs will get a refund of 50% of 3 months’ Social Security fee that companies and employees shall pay.
• SMEs renting state-owned real estate will be exempted from rent for 1 to 3 months. Private landlords are encouraged to moderately reduce rents during the immunization period for SMEs, and all districts and counties may provide appropriate financial subsidies to lease enterprises that adopt rent reduction measures.

Sichuan government

• For SMEs that rent state-owned properties, rent reduction or exemption is 1 to 3 months. Large-scale commercial buildings, shopping malls, and comprehensive market operation entities are encouraged to reduce or exempt rents for SMEs during the epidemic, and local governments can provide modest financial subsidies to rent-exempt owners.
• Companies can make a supplementary payment of social security fees three months after the epidemic ends. No overdue fine will be charged. Employees’ payment record for social security will not be affected by belated payments.*

Chengdu government

• The government will return 50% of the total unemployment insurance premiums actually paid in 2019 to companies that keep layoffs to a minimum or do not do any layoffs during the epidemic.
• The social security fees payable in January and February 2020 can be paid until the end of March. No overdue fine will be charged.*

Suzhou government

• If SMEs rent real estate of state-owned enterprises in the city to engage in production and operation activities, and insist on business operation according to the requirements of the government, or close down according to the epidemic prevention regulations without layoffs or fewer layoffs, the rent in February will be exempted. Rents in March and April will be reduced to 50%.  Private landlords are encouraged to offer rent reduction or exemption as well and can receive subsidies for this.
• If companies have difficulties paying real estate and urban land use taxes can apply for relief.
• SMEs can apply for deferred tax payments up to a maximum of 3 months.
• If companies face temporary production and/or operation difficulties and do no or fewer layoffs, 50% of the companies’ unemployment insurance premiums paid over 2019 will be returned.
• Companies unable to pay social insurance premiums can, after approval in accordance with regulations, defer social insurance premiums for a maximum of 6 months.*

Nanjing government

• If SMEs rent real estate of state-owned enterprises in the city to engage in production and operation activities, and insist on business operation according to the requirements of the government, or close down according to the epidemic prevention regulations without layoffs or fewer layoffs, the rent in February will be exempted. Rents in March and April will be reduced to 50%.  Private landlords are encouraged to offer rent reduction or exemption as well and can receive subsidies for this.
• If companies face temporary production and/or operation difficulties and do no or fewer layoffs, 50% of the companies’ unemployment insurance premiums paid over 2019 will be returned.
• Companies unable to pay social insurance premiums can, after approval in accordance with regulations, defer social insurance premiums for a maximum of 6 months.*

Shandong government

• If SMEs rent real estate of state-owned enterprises in the city to engage in production and operation activities, and insist on business operation according to the requirements of the government, or close down according to the epidemic prevention regulations without layoffs or fewer layoffs, rents can be reduced or halved for 1-3 months. Private landlords are encouraged to offer rent reduction or exemption as well.
• If companies have suffered serious losses and real difficulties paying real estate and urban land use taxes can apply for relief.
• SMEs can apply for deferred tax payments up to a maximum of 3 months.
• If companies face temporary production and/or operation difficulties and do no or fewer layoffs, 50% of the companies’ unemployment insurance premiums paid over 2019 will be returned.
• Companies unable to pay social insurance premiums can, after approval in accordance with regulations, defer social insurance premiums for a maximum of 6 months.*

Fujian government

• If SMEs rent real estate of state-owned enterprises in the city to engage in production and operation activities, and insist on business operation according to the requirements of the government, or close down according to the epidemic prevention regulations without layoffs or fewer layoffs, the rent in February will be exempted. Rents in March and April will be reduced to 50%.  Private landlords are encouraged to offer rent reduction or exemption as well.
• If companies have suffered serious losses and real difficulties paying real estate and urban land use taxes can apply for relief.
• SMEs can apply for deferred tax payments up to a maximum of 3 months.
• If companies face temporary production and/or operation difficulties and do no or fewer layoffs, 50% of the companies’ unemployment insurance premiums paid over 2019 will be returned.
• Companies unable to pay social insurance premiums can, after approval in accordance with regulations, defer social insurance premiums until three months after the epidemic is resolved, with no late fee charged.*

*Due to the later implementation of the exemption or reduction of social insurance payments (announcement on February 18), these local measures are subject to implementation of the new national directive.

Note: this article has last been updated on 24-06-2020 at 16:57.