China
Chew on This, Yuan Critics: New and Improved Big Mac Index
Nelson Ching/Bloomberg Cheaper in China, as it should be. The Economist has upgraded to a “gourmet” version of its Big Mac index, and the results are likely to be less satisfying for critics of China’s exchange rate policy. The magazine has always described the famous burger indicator as a “light-hearted” guide to exchange rate economics, as the theory it is based on has well-known flaws in describing appropriate exchange rate levels. “It was never intended as a precise gauge of currency misalignment,” the Economist said in an article on Friday. Yet to the magazine’s dismay, “American politicians have even cited the index in their demands for a big appreciation of the Chinese yuan.” The index is based on the theory of purchasing power parity (PPP), essentially the idea that goods should cost the same in markets around the world no matter what currency they are priced in. Since Big Macs sell for 44% less in China than the U.S., the yuan is therefore figured to be 44% undervalued against the dollar. But PPP only applies to tradable goods that are easily exchanged across borders, like commodities or electronics. Other, less mobile goods like labor and land may well cost different amounts in different markets, and in particular in developing countries where productivity and wages are much lower. Since labor and land are important inputs into the production of Big Macs, these differential costs feed through into the final cost of the burger. Hence the new Big Mac index, which adjusts for GDP per capita, and thus takes into account the lower costs in poorer countries. As the magazine notes, China’s average income is one-tenth what it is in the U.S., meaning China’s burgers really ought to be substantially cheaper. New York Senator and prominent yuan critic Chuck Schumer might want to make sure he’s sitting down before he checks out the Economist’s results , which show that on this basis the yuan is actually overvalued against the dollar by 3%. Against a group of various currencies, the yuan is still figured to be undervalued by 7%. which the Economist says is “hardly grounds for a trade war.” – Aaron Back. Follow him on Twitter @AaronBack
- Nelson Ching/Bloomberg
- Cheaper in China, as it should be.
The Economist has upgraded to a “gourmet” version of its Big Mac index, and the results are likely to be less satisfying for critics of China’s exchange rate policy.
The magazine has always described the famous burger indicator as a “light-hearted” guide to exchange rate economics, as the theory it is based on has well-known flaws in describing appropriate exchange rate levels.
“It was never intended as a precise gauge of currency misalignment,” the Economist said in an article on Friday. Yet to the magazine’s dismay, “American politicians have even cited the index in their demands for a big appreciation of the Chinese yuan.”
The index is based on the theory of purchasing power parity (PPP), essentially the idea that goods should cost the same in markets around the world no matter what currency they are priced in. Since Big Macs sell for 44% less in China than the U.S., the yuan is therefore figured to be 44% undervalued against the dollar.
But PPP only applies to tradable goods that are easily exchanged across borders, like commodities or electronics. Other, less mobile goods like labor and land may well cost different amounts in different markets, and in particular in developing countries where productivity and wages are much lower. Since labor and land are important inputs into the production of Big Macs, these differential costs feed through into the final cost of the burger.
Hence the new Big Mac index, which adjusts for GDP per capita, and thus takes into account the lower costs in poorer countries. As the magazine notes, China’s average income is one-tenth what it is in the U.S., meaning China’s burgers really ought to be substantially cheaper.
New York Senator and prominent yuan critic Chuck Schumer might want to make sure he’s sitting down before he checks out the Economist’s results, which show that on this basis the yuan is actually overvalued against the dollar by 3%. Against a group of various currencies, the yuan is still figured to be undervalued by 7%. which the Economist says is “hardly grounds for a trade war.”
– Aaron Back. Follow him on Twitter @AaronBack
China’s economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy.
One demographic consequence of the “one child” policy is that China is now one of the most rapidly aging countries in the world.
China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity.
The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.
The two sectors have differed in many respects.
A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history.
China’s increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem.
Globally, foreign investment decreased by almost 40 percent last year amid the financial downturn and is expected to show only marginal growth this year.
From January to June, the ODI in financial sectors was up by 44 percent to $17.9 billion, and in July alone, the ODI recorded $8.91 billion, the highest this year.
China is aiming to be the world’s largest new energy vehicle market by 2020 with 5 million cars.
Although China is still a developing country with a relatively low per capita income, it has experienced tremendous economic growth since the late 1970s.
Since the late 1970s, China has decollectivized agriculture, yielding tremendous gains in production.
China is the world’s largest producer of rice and wheat and a major producer of sweet potatoes, sorghum, millet, barley, peanuts, corn, soybeans, and potatoes.
Hogs and poultry are widely raised in China, furnishing important export staples, such as hog bristles and egg products.
Offshore exploration has become important to meeting domestic needs; massive deposits off the coasts are believed to exceed all the world’s known oil reserves.
There are also deposits of vanadium, magnetite, copper, fluorite, nickel, asbestos, phosphate rock, pyrite, and sulfur.
Hydroelectric projects exist in provinces served by major rivers where near-surface coal is not abundant.
After the 1960s, the emphasis was on regional self-sufficiency, and many factories sprang up in rural areas.
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Chew on This, Yuan Critics: New and Improved Big Mac Index
China
Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
Companies in China must navigate compliance, trading, and reporting within the CCER framework, impacting operations and strategic objectives. The program focuses on afforestation, solar, wind power, and mangrove creation, offering opportunities for innovation and revenue streams while ensuring transparency and accuracy. The Ministry of Ecology and Environment oversees the program.
As companies navigate the complexities of compliance, trading, and reporting within the CCER framework, they must also contend with the broader implications for their operations, finances, and strategic objectives.
This article explores the multifaceted impact of the CCER program on companies operating in China, examining both the opportunities for innovation and growth, as well as the potential risks and compliance considerations.
Initially, the CCER will focus on four sectors: afforestation, solar thermal power, offshore wind power, and mangrove vegetation creation. Companies operating within these sectors can register their accredited carbon reduction credits in the CCER system for trading purposes. These sectors were chosen due to their reliance on carbon credit sales for profitability. For instance, offshore wind power generation, as more costly than onshore alternatives, stands to benefit from additional revenue streams facilitated by CCER transactions.
Currently, primary buyers are expected to be high-emission enterprises seeking to offset their excess emissions and companies aiming to demonstrate corporate social responsibility by contributing to environmental conservation. Eventually, the program aims to allow individuals to purchase credits to offset their carbon footprints. Unlike the mandatory national ETS, the revamped CCER scheme permits any enterprise to buy carbon credits, thereby expanding the market scope.
The Ministry of Ecology and Environment (MEE) oversees the CCER program, having assumed responsibility for climate change initiatives from the National Development and Reform Commission (NDRC) in 2018. Verification agencies and project operators are mandated to ensure transparency and accuracy in disclosing project details and carbon reduction practices.
On the second day after the launch on January 23, the first transaction in China’s voluntary carbon market saw the China National Offshore Oil Corporation (CNOOC), the country’s largest offshore oil and gas producer, purchase 250,000 tons of carbon credits to offset its emissions.
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
China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
China’s Ministry of Commerce announced new policy measures on April 19, 2023, to encourage foreign investment in the technology sector. The measures include facilitating bond issuance, improving the investment environment, and simplifying procedures for foreign institutions to access the Chinese market.
On April 19, 2023, China’s Ministry of Commerce (MOFCOM) along with nine other departments announced a new set of policy measures (hereinafter, “new measures”) aimed at encouraging foreign investment in its technology sector.
Among the new measures, China intends to facilitate the issuance of RMB bonds by eligible overseas institutions and encourage both domestic and foreign-invested tech companies to raise funds through bond issuance.
In this article, we offer an overview of the new measures and their broader significance in fostering international investment and driving innovation-driven growth, underscoring China’s efforts to instill confidence among foreign investors.
The new measures contain a total of sixteen points aimed at facilitating foreign investment in China’s technology sector and improving the overall investment environment.
Divided into four main chapters, the new measures address key aspects including:
Firstly, China aims to expedite the approval process for QFII and RQFII, ensuring efficient access to the Chinese market. Moreover, the government promises to simplify procedures, facilitating operational activities and fund management for foreign institutions.
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
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.
- Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
- China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
- 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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