Corporate China is bracing for a big tax increase as the government steps up collection of payroll levies that fund the country’s social insurance programmes, after years of allowing smaller companies to shirk their obligations.

But the move to increase the collection of social security contributions is rubbing against an effort to cut corporate taxes to support a slowing economy. Strict enforcement of social security requirements would cut corporate profits 2.5 per cent and nominal growth in gross domestic product 0.6 percentage points, according to estimates by Ting Lu, chief China economist at Nomura in Hong Kong.

“Policymakers have to strike a balance between holding down costs for companies and protecting the interests of workers,” said Wang Dehua, researcher at the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, a think-tank that advises the government.