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Our observation: Innovation is the only way to reduce costs

Author: Lizhong Feng Source: China Financial and Economic News Published: 2019-10-24

On October 22, the Chinese Academy of Finance and Science held a large-scale national “Research on Cost Reduction” in China in 2019. The report investigates and evaluates the effects of cost reduction related policies implemented in the past three years.

The report shows that over the past three years, the cost-reduction policy has been matched with macro-control policies and has supported the stable operation of the macro-economy to a certain extent. Driven by large-scale tax and fee reduction policies, the tax burden of most enterprises has dropped significantly, and institutional transaction costs have continued to decline. However, in the context of the high cost stage of enterprise development, cost reduction requires new approaches. It should be changed from "mainly relying on burden reduction" to "mainly relying on innovation". Innovation is the only way to reduce costs.

The tax burden of most enterprises has dropped significantly

At the seminar, Liu Shangxi, the dean of the Chinese Academy of Finance Sciences, said that from the field investigation, the tax costs, financing costs, and energy and land use costs of enterprises have declined to a certain extent, but the cost of factors such as labor, logistics, and raw materials remains. Maintain a certain upward trend.

First, driven by the large-scale tax and fee reduction policies, the tax burden of most enterprises has dropped significantly. From the perspective of industry, the satisfaction rates of manufacturing, construction, and service companies were 97.8%, 97.5%, and 100%, respectively. From the perspective of enterprise size, the satisfaction rates of large enterprises, medium-sized enterprises, and small and micro enterprises were 97.1%, 100%, and 100%.

Second, the amount of corporate litigation fees has increased year by year, and its proportion in operating income has shown an upward trend. This fully reflects the importance of responding to litigation or effectively using litigation for rights protection, and also reflects the existence of certain problems in the business ecological environment of enterprises.

Third, the scale of corporate financing continues to rise, short-term loan interest rates continue to fall, and long-term loan interest rates continue to rise.

Fourth, the effectiveness of the business environment optimization is obvious, and enterprises are most looking forward to improving the transparency of policies and regulations.

Fifth, the company's labor costs continue to rise, and the hidden rise in prices is the main reason. As the age structure of the population changes, the advantage of the demographic dividend gradually decreases, and the comparative advantage of labor costs gradually loses. The labor costs of enterprises including wages, five insurances and one fund continue to rise.

Sixth, the rising logistics costs of enterprises, and rising labor costs are the main influencing factors. From a regional perspective, the average logistics cost per household in the central region increased the fastest (25.90% growth rate), and the average logistics cost per household in the Northeast region grew the slowest (12.28% growth rate). Outside the enterprise, the average logistics cost of most ownership enterprises is increasing.

Seventh, the cost of raw materials for enterprises has risen significantly. From the total sample, the average cost of raw materials per household in the real economy companies has increased at an average annual growth rate of 17.68% in the past three years.

Eighth, the growth rate of enterprises' energy and land costs has dropped significantly. In the past three years, the average cost of electricity consumption of China's real economy enterprises has continued to increase, but the growth rate has dropped significantly, from a year-on-year increase of 7.66% in 2017 to a year-on-year increase of 0.96% in 2018. At the same time, the cost of electricity used by enterprises per unit fell by 1.2% in 2018.

The research team also found during the field survey that the leverage ratio of the company is basically stable, the growth rate of the accounts receivable turnover rate has decreased, the gross profit margin and the return on total assets have increased, and the comprehensive cost of the enterprise has an upward trend; The cost of one hundred yuan business revenue has dropped slightly, expenses have increased, and research and development expenditures have continued to rise; the uncertainty of the trading environment has not yet had a substantial impact on China's import and export trade, but export-oriented enterprises have felt the cost pressure. Successive policies have been introduced to stabilize foreign trade and foreign investment.

Deepening factor marketization reform

Liu Shangxi believes that the cost of factors such as labor, logistics, and raw materials of enterprises is on the rise, and more thorough factor marketization reforms are needed to solve it.

To this end, seven recommendations are reported:

——Innovation of the system should combine cost reduction with comprehensively deepening reform. Reduce the costs induced by various risks and uncertainties; rectify the phenomenon of "absence" and "offside", and correspondingly "refill" and "abscission"; properly handle the relationship between the central and local governments, consider them comprehensively and fully mobilize The enthusiasm and innovation of cost have formed a joint force for reform in the whole society.

——The reduction of institutional transaction costs must be combined with the continuous optimization of the business environment. On the one hand, we need to promote fair access and eliminate various irrational system thresholds and restrictions; on the other hand, we need to improve the quality of supervision and reduce the government's arbitrary intervention in the operation of various market entities. Public service efficiency. Create an environment that supports innovation, and support companies to reduce costs through innovation.

——Reducing the tax burden should be combined with improving the reform of the fiscal and taxation system. The "low tax rate, wide tax base, and strict collection and management" tax structure should be the target model for future tax reform. With the improvement of the taxation system and the improvement of collection and management capabilities, micro-entities can better plan for the future and expect stable development. The policy of reducing taxes and fees should continue to be combined with improving the fiscal and taxation system, stabilizing local expectations, encouraging localities to cultivate and expand tax sources in economic development, and enhancing the "blood-making" function of local finances.

-Reducing unreasonable labor costs must be combined with reforms in the social sphere. The fee reduction policy should consider the long-term sustainability of the social security system and reform the existing pay-as-you-go social security system. Deepen the reform of scientific research institutions, liberate talents, and reduce innovation costs.

——Reducing financing costs must be combined with deepening financial supply-side reforms. Optimize financial supervision and reduce distortion of resource allocation caused by inefficient or ineffective supervision. Encourage financial institutions to innovate financing support for the real economy and private enterprises. In order to encourage the innovative activities of private enterprises, the proportion of commercial banks' loans to private enterprises can be increased. Make full use of modern financial technology such as big data to achieve precise financing support for small and micro enterprises.

——Reducing the energy and logistics costs of enterprises must be combined with promoting the reform of the energy and transportation systems. Adhere to the market orientation, and further improve the energy price formation mechanism. Guide the general industrial and commercial electricity prices to continue to decrease. Improve the efficiency of integrated transportation networks and reduce logistics costs.

——Enterprises must effectively hedge high cost challenges by improving cost conversion rates and added value. In addition to the government's efforts to reduce costs, in the long run, it is even more necessary for enterprises to enhance their own innovation capabilities. Through model innovation, research and development innovation, and management innovation, they can increase cost conversion rates and added value.

It is understood that this year is the fourth consecutive year that the Chinese Academy of Finance Research has launched a large-scale survey of "cost reduction". The theme of this year is "cost reduction and high-quality development of real economy enterprises." The event surveyed 19 provinces, 30 cities and counties, and discussed and visited 203 companies. The online questionnaire included 9 sections and 35 major questions, and a total of 12,175 valid samples were obtained.

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