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Ulrich Sees China Tax Reform Amid Shift to Consumption Focus

JPMorgan Chase & Co. Jing Ulrich
Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co. Photographer: Jerome Favre/Bloomberg

China may implement “dramatic” tax reforms and introduce more easing measures to help boost the economy as it shifts its focus to domestic demand growth from exports, Jing Ulrich, managing director and chairman of global markets for China at JPMorgan Chase & Co., said.

Interest rates may be cut if growth in the world’s second-largest economy remains sluggish, Ulrich said. The People’s Bank of China may cut reserve ratio levels for major banks on three more occasions this year after reductions in December and February, Ulrich said. China will reform its tax system this year, cutting consumption and service taxes to stimulate consumer spending, she said.

“Tax reduction will be a major theme throughout 2012,” Ulrich said at a conference today in Hong Kong. “The central government has collected huge amount of taxes in the last few years and deficit remains very small. They’re in a good position to reduce tax in an environment where economic growth is slowing.”

China is targeting economic growth of 7.5 percent this year, the lowest since 2004, and inflation of 4 percent, Premier Wen Jiabao said in a state-of-the-nation speech on March 5. The government is keeping in place measures to rein in property prices as it attempts to replace exports with domestic demand as the main driver of expansion.

‘Worst Behind Us’

The “worst is behind us” for China’s real-estate market and property prices and transaction volumes will begin to improve in the second half of the year, Ulrich said. Still, high inventories in steel, cement and other materials will continue to put pressure on construction stocks, she said.

The Shanghai Composite Index gained 9.6 percent this year through yesterday following two years of losses. Equities have risen on speculation the central bank will add to a Feb. 18 cut in reserve requirements to halt a slowdown in economic growth. Stocks in the index trade at 10 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.

“Some time in 2012 we will have decent returns in the A-share market, although a shift away from a bear market mentality to a bull market mentality would take some time,” Ulrich said.

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