Photographer: Qilai Shen/Bloomberg
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China's Cutting Taxes for the Industries Trump Wants to Punish

China’s high-tech industries are among sectors poised to gain from a fresh round of tax cuts, just as U.S. President Donald Trump weighs tariffs to penalize them.

The value-added tax on manufacturing will be cut to 16 percent from 17 percent starting May 1 while the rate on transportation, construction, and telecommunications services will be lowered to 10 percent from 11 percent, the State Council said in a statement late Wednesday.

The reductions will directly benefit high-end manufacturing and innovation-driven technology companies that are supported by the state’s "Made in China 2025 plan," according to a report by Sinolink Securities Co. Profits will also be boosted in sectors including construction, mining, public utilities, information technology and machinery, it said. The industrial policy envisions catapulting 10 strategic industries to global competitiveness by 2025.

Read More: Trump Targets China’s Push to Make Its Economy High-Tech

“Lost competitiveness because of an aging population and rising land and energy costs has pushed China’s manufacturing sector into a bottleneck,” Sinolink said. “The nation is focusing on manufacturing, especially advanced manufacturing, and using tax and fee cuts to reduce costs for them.”

The tax cuts will boost economic growth from the second quarter through early next year, wrote China International Capital Corp. economist Liu Liu in a report.

The details announced Wednesday are the first part of a total of 800 billion yuan ($127 billion) in tax cuts this year for individuals and enterprises announced by Premier Li Keqiang earlier this month. Those combined with reductions in business fees add up to savings of 1.1 trillion yuan, according to the government.

The 2025 plan supports information technology, high-end machinery and robotics, aerospace, marine equipment and ships, advanced rail transport, new-energy vehicles, electric power, agricultural machinery, new materials and bio-medical.

The list of products that the U.S. hits with tariffs will line up with industries included in the Made in China 2025 strategy, White House trade adviser Peter Navarro said Wednesday in a Bloomberg Television interview.

— With assistance by Xiaoqing Pi, and Kevin Hamlin

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