Facing the economic downturn, stabling employment has become a priority in the Chinese economy, and the key to how to stabilize employment is to encourage investment in enterprises. In this regard, the Chinese government has introduced a number of policies, especially in terms of reducing corporate financing costs. Yet, this is not enough; the key is to improve the business environment of the enterprises as this will not only enhance the enthusiasm of domestic enterprises but also attract more foreign investment.
According to the 2019 edition of the annual Paying Taxes report released by the World Bank and PricewaterhouseCoopers in Beijing, the global average total tax and contribution rate (including tax that excludes VAT, social security contributions, and non-tax revenue) in 2017 was 40.4%. The total tax and contribution rate (i.e., total tax) in China in 2017 was 64.9%. According to industry insiders, China's tax revenue is not high, mainly because of the higher rate of nominal social security contributions. Therefore, the business environment of Chinese enterprises is not taxed but rather paying social security.
Therefore, measures in reducing social security contributions have become the first step in improving the business environment in some places. On December 26, Shandong Province issued a series of policies to stabilize and expand employment, including from January 1, 2019 to December 31, 2020, for the enterprises that are unable to pay the minimum wage for employees or unable to produce and operate normally for more than three consecutive months and can only provide living expenses for employees, such enterprises may apply for the postponement of the payment of social insurance premiums. After being approved, they can suspend the payment of social insurance premiums, and the fee for late payment will be exempted. At the same time, it is confirmed from multiple channels that the Chinese State Administration of Taxation issued a document recently, clarifying that the social insurance premium collection function paid by enterprises will be temporarily transferred to the taxation department. Experts believe that this is also creating a good environment for the development of private enterprises.
Anbound researchers believe that the practice in Shandong Province is the further improvement on the basis of the requirements of the State Council concerning the tax department's delaying in the investigation of corporate social security. This is a move to improve the business environment and reduce the burden on enterprises in China. However, it is not enough to reduce taxes and reduce taxes and suspend social security; China should amend the Labor Law to improve the business environment. The internationally renowned economist Zhang Wuchang believes that the current Chinese Labor Law must be halted for the Chinese economy to achieve something.
After the implementation of the New Labor Contract Law on January 1, 2008, the National People's Congress has examined the implementation of this law. Although no statistical data is provided, the law enforcement inspection report still points out that in labor-intensive enterprises such as catering, entertainment, tourism, construction, and others, the labor contract signing rate is actually low, and some SMEs and private enterprises have lower labor contract signing rates. The insiders of the All-China Federation of Industry and Commerce said that the formulation of the Labor Contract Law is mainly aimed at medium-sized enterprises with a certain scale and relative formation. The average size of China's more than 5.6 million small and medium-sized enterprises is only 12 employees, and it would be difficult to subject them to strict contract and wage system. This is especially true during the economic downturn where some local governments have affected the law enforcement efforts to protect enterprises, and the current labor law enforcement supervision force is insufficient. It is easier for enterprises to feel that there is no difference between contract signing and non-signing, which ultimately reduces the effectiveness of the law. With the increase in labor costs, many employers have tried their best to bypass the Labor Contract Law. It is undeniable that with the increasingly serious employment situation, the Labor Contract Law is inevitably in a state of paralysis. The current difficulties may prompt enterprises to evade their responsibilities. If they are not strictly enforced, the authority of the law itself will be damaged. At the same time, the provisions of the law itself have set a high threshold for the development of enterprises, especially of small and medium-sized enterprises.
The impact caused by the New Labor Contract Law is far from over, and its negative effects continue to be felt. Due to the rising burden of labor costs, many foreign-invested SMEs have chosen to withdraw. The reasons for the withdrawal of these small and medium-sized foreign-funded factories are basically the same, namely new labor laws, increased costs, and changes in local government policies. Based on a variety of information, foreign investors' complaints about the New Labor Contract Law are still growing. In fact, the impact of the New Labor Law appears to be felt by the domestic enterprises as well. Anbound believes that the biggest problem of the New Labor Law is in two aspects. First, the employee protection responsibility is being bore by the enterprises more than social security. The second is that it has completely changed the employment relationship in China; it is not the employer who hires employees, but the opposite is true. In our view, the formulation and introduction of these laws did not fully consider the possible impact on China's economic and social systems, and at the same time, the sense of direction is wanting.
The surveys and analysis of Anbound's analysts show that the disputes caused by the New Labor Law continue to cause controversy among entrepreneurs, academics, and legislatures. Many entrepreneurs have raised the question of whether the development of China's system should be as advanced as possible. For example, China's New Labor Contract Law is more advanced than European law, and a system that is too advanced will cause problems in the current time. Deng Xiaoping's theory of "the primary stage of socialism" is still valid; therefore, China's policy formulation must look at the stage of social development, and they should know if China is socialist or capitalist. Some researchers also said that China's Labor Contract Law is more advanced than Europe; the European regulations aim for workers, and China's regulations face a large number of farmers. Since the situations are different, the law should also be different.
Final analysis conclusion:
Tax reduction is only a small step to improve the Chinese business environment; the key is that China should amend the Labor Law to improve the business environment of enterprises so that the law can be adapted to the stage of economic development.
