China's leaders on Tuesday announced new controls and taxes on the liveliest sectors of the ailing economy: private businesses, rural factories and free-market farming.
Economic and budget reports delivered to the National People's Congress, the legislature, further tightened the screws on economic growth six months after the government began a major austerity drive.Vice Premier Yao Yilin told the congress, in the second day of a 16-day annual session, that even some needed projects in energy, transporation and raw materials processing may have to be scrapped.
Wages will be strictly controlled, he said, and imports of some goods that can be made at home will be restricted or barred. He did not cite examples.
Finance Minister Wang Bingqian announced a draft 1989 budget that would increase state spending by 9.8 percent to $79 billion. It would contain a $2 billion deficit, less than in 1988 due to new sales and business taxes.
Yao, head of the State Planning Commission, said the austerity measures were needed to control "excessive price hikes due to overheated economic growth and overinflated social demand."
Inflation is running at a post-war record annual rate of 36 percent, and last year's 20 percent industrial growth rate overtaxed China's energy supply and transport network. Many factories have been forced to close two to four days each week for lack of electricity, while not enough train cars can be found to ship coal to power plants.
Yao said too many localities failed to comply with austerity programs introduced in September, which ordered sharp cutbacks in construction, loans and spending on such luxuries as cars and banquets. As a result, controls this year will be even tighter, he said.
Hit hardest appeared to be private and collectively owned factories, which have become the most productive sector of the economy since senior leader Deng Xiaoping approved them in the early 1980s.
Yao said no loans would be issued this year to private companies and rural enterprises. Many, he said, will be ordered to shut down because they siphon needed raw materials from state factories.
Wang said private and collective enterprises will have to pay an additional 10 percent surcharge on their after-tax profits.
New taxes will be imposed on peasants who raise fruit, fish and other non-staple crops for sale on the private market, Agriculture Minister He Kang said. Tax rates will start at 5 percent and could go above 15 percent, depending on the peasant's profits and whether the land was suitable for growing grain, he said. Most grain is bought and sold by the state.