China
China’s stake in the euro crisis
Author: Jonas Parello-Plesner, ECFR
Chinese leaders had a packed Valentine’s Day this year. Xi Jinping, the new leader-in-waiting, toured the US in an effort to develop a rapport with American leaders, while back in Beijing, Wen Jiabao hosted Herman Van Rompuy and José Manuel Barroso as part of the EU-China Summit.
The main question was whether China’s Valentine gift would be a larger financial stake in Europe, at a time when the EU is struggling to secure the continuity of the euro. Wen signalled the possibility of increased support for Europe’s ailing rescue fund, the European Financial Stability Facility, but added that China does not have the capacity to ‘buy up Europe’.
In light of these recent events, discussing China’s stake in the euro crisis calls for some preliminary myth-busting.
First, if China takes a larger stake in Europe’s debts, it does not mean that Europe’s free will is going to be sold off to China in a Faustian deal. Even though the US has a much larger debt with China, for example, no one is inclined to question whether US foreign policy is decided in Beijing. The same goes for Europe; fears that reaching out to China is akin to a ‘financial Munich agreement’ are overblown.
Another myth, relayed by the press, is that every positive word on Europe from a Chinese leader will translate into a buying of bonds. But when China says it has confidence that Europe will resolve the crisis and that China will do its part to assist, it does not necessarily mean that Chinese money will flow in. China discloses its total holdings of currency reserves, but these figures are not broken down into countries and currencies. And neither the EU nor its individual member states have sufficient monitoring systems to track foreign holders of treasury bonds. As a result, one way or the other, it is hard to know exactly how much European debt China holds.
Nevertheless, China has a fundamental interest in seeing the euro crisis recede, as it is dependent on the EU for the largest part of its exports. China is also seeking to move beyond dollars in its currency intake, and a world without the euro would be a return to a completely dollar-dominated system.
The top priority for China in pursuing this interest is risk-aversion — and this is no myth. Hence Beijing is seeking stable and secure returns on foreign currency reserves; it burnt its fingers by investing in Wall Street in 2007 through its sovereign wealth fund and by buying too many dollars relative to other currencies, with the former now showing dwindling returns as the US resorts to printing money. Also, with Chinese public awareness on the rise and the country’s wealth colloquially baptised the ‘blood and sweat’ of the Chinese people, many Chinese netizens are questioning why China has to bail out ‘lazy’ Europeans at a time when social inequality is rampant in China. Wen Jiabao’s remarks that helping Europe is in China’s best interest are partly meant to placate this blog-fuelled dissatisfaction.
An additional complicating factor for China is that its currency reserves are declining for the first time in years, and 2012 could be a bumpy year economically. China might need to draw on its reserves to pull up growth to the magical 8 per cent that will help ensure a smooth political transition at the end of the year.
This helps explain the tight balancing act to which Chinese leaders have committed, showing some public support for the EU’s currency ills while showing an equal dose of risk-averse reluctance at throwing too much money into the EU’s piecemeal solutions. For example, the head of China’s central bank, Governor Zhou, recently stated that China’s helping hand amounted to not reducing ‘the proportion of euro exposure in its reserves’ — hardly the same as a massive purchase. The announcement sends the message that Europe should work out its own solutions without waiting idly for an inflow of Chinese money. But at the same time it does not rule out additional Chinese financial support. The most likely scenario is that China will put additional money into the EU through an international body such as the IMF. This would presumably be in cooperation with other partners like Japan and the BRIC countries, meaning China would not stand alone with the risk. Yet here both the US and paradoxically also Germany are reluctant since it could enhance China’s say in the IMF.
Still, China’s support for Europe is not yet a done deal. A public commitment from China’s leaders quoting actual figures would help dispel myths both in Europe and China and would allow ordinary Chinese currency earners to track where their funds go.
Also, while China might also favour risk-aversion when it comes to buying euros, it is more than willing to accept a stake in Europe’s crisis by buying up companies. Chinese Commerce Minister Chen Deming said he looked forward to a sale of European assets, and China recently purchased a large stake in Portugal’s formerly state-owned energy company, which was sold off because of austerity cuts. This rapid move into European acquisitions could well be the most startling change in the relationship between the EU and China in recent years — and is likely to significantly affect the relationship for many more years to come.
Jonas Parello-Plesner is Senior Policy Fellow at the European Council on Foreign Relations. He has worked as a senior advisor with the Danish government on Asian affairs. He is on the board of editors of the Danish magazine Raeson.
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China’s stake in the euro crisis
China
Q1 2024 Brief on Transfer Pricing in Asia
Indonesia’s Ministry of Finance released Regulation No. 172 of 2023 on transfer pricing, consolidating various guidelines. The Directorate General of Taxes focuses on compliance, expanded arm’s length principle, and substance checks. Singapore’s Budget 2024 addresses economic challenges, operational costs, and sustainability, implementing global tax reforms like the Income Inclusion Rule and Domestic Top-up Tax.
Indonesia’s Ministry of Finance (MoF) has released Regulation No. 172 of 2023 (“PMK-172”), which prevails as a unified transfer pricing guideline. PMK-172 consolidates various transfer pricing matters that were previously covered under separate regulations, including the application of the arm’s length principle, transfer pricing documentation requirements, transfer pricing adjustments, Mutual Agreement Procedure (“MAP”), and Advance Pricing Agreements (“APA”).
The Indonesian Directorate General of Taxes (DGT) has continued to focus on compliance with the ex-ante principle, the expanded scope of transactions subject to the arm’s length principle, and the reinforcement of substance checks as part of the preliminary stage, indicating the DGT’s expectation of meticulous and well-supported transfer pricing analyses conducted by taxpayers.
In conclusion, PMK-172 reflects the Indonesian government’s commitment to addressing some of the most controversial transfer pricing issues and promoting clarity and certainty. While it brings new opportunities, it also presents challenges. Taxpayers are strongly advised to evaluate the implications of these new guidelines on their businesses in Indonesia to navigate this transformative regulatory landscape successfully.
In a significant move to bolster economic resilience and sustainability, Singapore’s Deputy Prime Minister and Minister for Finance, Mr. Lawrence Wong, unveiled the ambitious Singapore Budget 2024 on February 16, 2024. Amidst global economic fluctuations and a pressing climate crisis, the Budget strategically addresses the dual challenges of rising operational costs and the imperative for sustainable development, marking a pivotal step towards fortifying Singapore’s position as a competitive and green economy.
In anticipation of global tax reforms, Singapore’s proactive steps to implement the Income Inclusion Rule (IIR) and Domestic Top-up Tax (DTT) under the BEPS 2.0 framework demonstrate a forward-looking approach to ensure tax compliance and fairness. These measures reaffirm Singapore’s commitment to international tax standards while safeguarding its economic interests.
Transfer pricing highlights from the Singapore Budget 2024 include:
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
China has been the world’s largest manufacturer for 14 years, producing one-third of global manufacturing output. In the Emerging Asia Manufacturing Index 2024, China ranks highest among eight emerging countries in the region. Challenges for these countries include global demand disparities affecting industrial output and export orders.
Known as the “World’s Factory”, China has held the title of the world’s largest manufacturer for 14 consecutive years, starting from 2010. Its factories churn out approximately one-third of the global manufacturing output, a testament to its industrial might and capacity.
China’s dominant role as the world’s sole manufacturing power is reaffirmed in Dezan Shira & Associates’ Emerging Asia Manufacturing Index 2024 report (“EAMI 2024”), in which China secures the top spot among eight emerging countries in the Asia-Pacific region. The other seven economies are India, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Bangladesh.
The EAMI 2024 aims to assess the potential of these eight economies, navigate the risks, and pinpoint specific factors affecting the manufacturing landscape.
In this article, we delve into the key findings of the EAMI 2024 report and navigate China’s advantages and disadvantages in the manufacturing sector, placing them within the Asia-Pacific comparative context.
Emerging Asia countries face various challenges, especially in the current phase of increased volatility, uncertainty, complexity, and ambiguity (VUCA). One notable challenge is the impact of global demand disparities on the manufacturing sector, affecting industrial output and export orders.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Is journalist Vicky Xu preparing to return to China?
Chinese social media influencers have recently claimed that prominent Chinese-born Australian journalist Vicky Xu had posted a message saying she planned to return to China.
There is no evidence for this. The source did not provide evidence to support the claim, and Xu herself later confirmed to AFCL that she has no such plans.
Currently working as an analyst at the Australian Strategic Policy Institute, or ASPI, Xu has previously written for both the Australian Broadcasting Corporation, or ABC, and The New York Times.
A Chinese language netizen on X initially claimed on March 31 that the changing geopolitical relations between Sydney and Beijing had caused Xu to become an expendable asset and that she had posted a message expressing a strong desire to return to China. An illegible, blurred photo of the supposed message accompanied the post.
This claim was retweeted by a widely followed influencer on the popular Chinese social media site Weibo one day later, who additionally commented that Xu was a “traitor” who had been abandoned by Australian media.
Following the publication of an ASPI article in 2021 which exposed forced labor conditions in Xinjiang co-authored by Xu, the journalist was labeled “morally bankrupt” and “anti-China” by the Chinese state owned media outlet Global Times and subjected to an influx of threatening messages and digital abuse, eventually forcing her to temporarily close several of her social media accounts.
AFCL found that neither Xu’s active X nor LinkedIn account has any mention of her supposed return to China, and received the following response from Xu herself about the rumor:
“I can confirm that I don’t have plans to go back to China. I think if I do go back I’ll most definitely be detained or imprisoned – so the only career I’ll be having is probably going to be prison labor or something like that, which wouldn’t be ideal.”
Neither a keyword search nor reverse image search on the photo attached to the original X post turned up any text from Xu supporting the netizens’ claims.
Translated by Shen Ke. Edited by Shen Ke and Malcolm Foster.
Asia Fact Check Lab (AFCL) was established to counter disinformation in today’s complex media environment. We publish fact-checks, media-watches and in-depth reports that aim to sharpen and deepen our readers’ understanding of current affairs and public issues. If you like our content, you can also follow us on Facebook, Instagram and X.
Read the rest of this article here >>> Is journalist Vicky Xu preparing to return to China?
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