China
Volts Don’t Lie? An Alternative Approach to Calculating China’s Growth
By Tom Orlik China’s Vice Premier Li Keqiang said in 2007 that the GDP data for the world’s second largest economy was ‘man made’ and not to be trusted. Instead, the then Party Secretary of Liaoning Province said, he relied on electricity production, train freight and bank loan data as a guide to the state of the economy. Last month, CRT looked at the strengths and weaknesses of China’s GDP data, concluding that the government’s methods for calculating the size of the world’s second-largest economy had improved but still left something to be desired . Are electricity statistics a better guide to growth? Electricity output has a special place in the world of China’s economic data. Officials might lie, it is believed, but volts do not. Ever since economists cried foul on the 1998 GDP data, citing the difference between falling growth in production of electricity and stable growth in GDP, the markets have viewed the electricity data as a proxy for overall growth. That makes some sense. The manufacturing and industrial sectors are major consumers of electricity; changes in output should be reflected in changes in electricity production. Over the last several years, growth in electricity output has moved more or less in line with growth in industrial output. With some of China’s main growth indicators putting in a dismal performance in the last few months, and concerns about a hard landing for the economy, the electricity data provides an optimistic counterpoint. Following a weak April and May, electricity output was up 16.2% year-on-year in June, suggesting a strengthening economy. That contrasts with a weak reading from the preliminary HSBC PMI report in July, which suggested contraction is on the cards. But before breaking out the celebratory baijiu and heading out for karaoke, China’s economic policy makers should consider a few shortcomings of the electricity output data as a guide to growth: – Changes in the structure of the economy change the relationship between growth and electricity consumption. For example, a shrinking role for manufacturing and a larger role for services – something China’s economic planners have been pushing lately — reduces growth in electricity production but not necessarily growth in GDP. And even with no change in the structure of industry, many manufacturers have off-grid generators that they can switch on or off without affecting electricity production data – which only captures on-grid activity. – China’s electricity producers have their own problems. Hydropower accounts for 16% of China’s electricity output. Droughts in April and May meant generators ran into difficulties. Heavy rain has now brought them whirring back to life. Neither the drought nor the flood said much about the underlying strength of demand for electricity. Changes in costs for coal – the main input into electricity generation – can also play havoc with production. – Households account for 12% of electricity consumption and their demand is affected mainly by the weather – which determines whether central heating and air conditioners are on or off – with little relation to changes in growth. All of these factors mean the relation between electricity production and economic growth is difficult to predict. Investors who pay too much attention to electricity as a proxy for growth can misread the signs. This was the case in the first half of 2009, when growth in electricity output stayed in negative territory till May – partly because of a slow recovery in the electricity intensive aluminum sector, but the rebound in the rest of the economy was strong. In the second half of 2011, optimism about the outlook based on June’s strong electricity data may be similarly misplaced. Tom Orlik’s new book Understanding China’s Economic Indicators was released July 12
By Tom Orlik China’s Vice Premier Li Keqiang said in 2007 that the GDP data for the world’s second largest economy was ‘man made’ and not to be trusted. Instead, the then Party Secretary of Liaoning Province said, he relied on electricity production, train freight and bank loan data as a guide to the state of the economy. Last month, CRT looked at the strengths and weaknesses of China’s GDP data, concluding that the government’s methods for calculating the size of the world’s second-largest economy had improved but still left something to be desired . Are electricity statistics a better guide to growth? Electricity output has a special place in the world of China’s economic data. Officials might lie, it is believed, but volts do not. Ever since economists cried foul on the 1998 GDP data, citing the difference between falling growth in production of electricity and stable growth in GDP, the markets have viewed the electricity data as a proxy for overall growth. That makes some sense. The manufacturing and industrial sectors are major consumers of electricity; changes in output should be reflected in changes in electricity production. Over the last several years, growth in electricity output has moved more or less in line with growth in industrial output. With some of China’s main growth indicators putting in a dismal performance in the last few months, and concerns about a hard landing for the economy, the electricity data provides an optimistic counterpoint. Following a weak April and May, electricity output was up 16.2% year-on-year in June, suggesting a strengthening economy. That contrasts with a weak reading from the preliminary HSBC PMI report in July, which suggested contraction is on the cards. But before breaking out the celebratory baijiu and heading out for karaoke, China’s economic policy makers should consider a few shortcomings of the electricity output data as a guide to growth: – Changes in the structure of the economy change the relationship between growth and electricity consumption. For example, a shrinking role for manufacturing and a larger role for services – something China’s economic planners have been pushing lately — reduces growth in electricity production but not necessarily growth in GDP. And even with no change in the structure of industry, many manufacturers have off-grid generators that they can switch on or off without affecting electricity production data – which only captures on-grid activity. – China’s electricity producers have their own problems. Hydropower accounts for 16% of China’s electricity output. Droughts in April and May meant generators ran into difficulties. Heavy rain has now brought them whirring back to life. Neither the drought nor the flood said much about the underlying strength of demand for electricity. Changes in costs for coal – the main input into electricity generation – can also play havoc with production. – Households account for 12% of electricity consumption and their demand is affected mainly by the weather – which determines whether central heating and air conditioners are on or off – with little relation to changes in growth. All of these factors mean the relation between electricity production and economic growth is difficult to predict. Investors who pay too much attention to electricity as a proxy for growth can misread the signs. This was the case in the first half of 2009, when growth in electricity output stayed in negative territory till May – partly because of a slow recovery in the electricity intensive aluminum sector, but the rebound in the rest of the economy was strong. In the second half of 2011, optimism about the outlook based on June’s strong electricity data may be similarly misplaced. Tom Orlik’s new book Understanding China’s Economic Indicators was released July 12
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Volts Don’t Lie? An Alternative Approach to Calculating China’s Growth
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?
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
- Is journalist Vicky Xu preparing to return to China?
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