China
China Avoids Jackson, But Not Gathering Economic Gloom
The world’s monetary policy elite is gathering in Jackson Hole, Wyoming for their annual symposium. Federal Reserve Chairman Ben Bernanke is topping the bill and is expected to confirm a downbeat outlook for the U.S. and world economy. China is not normally well represented at the meeting and the expectation this year is that no one from China will appear on the roster of speakers. But present or not, China won’t escape the implications of the gathering gloom. With prospects for growth in the U.S. and Europe increasingly shaky, investment banks have been rushing to downgrade their forecasts for growth in China. Downgrading Growth China growth forecasts for 2011 and 2012. Click for larger image. Ma Jun at Deutsche Bank sums up the reason for the move to downgrade: “We believe that in the near term, the single most important shock to the Chinese economy will be the likely slowdown (or even recession) of the EU and US economies.” Deutsche Bank has downgraded its China growth forecast for 2011 to 8.9% from 9.1%, and for 2012 to 8.3% from 8.6%. “Much weaker growth prospects in developed economies” have also prompted Wang Tao at UBS to lower forecasts for growth in China to 9% from 9.3% in 2011, with a sharper drop to 8.3% from 9% in 2012. The path from lower growth in the U.S. and Europe to lower growth in China lies through exports. Mr. Ma explains: “The key transmission mechanism is that for each 1 percentage point slowdown in EU/US growth, China’s export growth slows by about 6-7 percentage points… which in turn should reduce China’s GDP growth by 1 percentage points, including the ripple effect on investment slowdown in related sectors.” With politicians in the U.S. lambasting China’s exporters as the source of all their woes, it might be expected that the impact would be greater. In fact, the share of exports in China’s GDP dipped from 35% in 2007 to 27% in 2010. Even that 27% figure overstates the importance of exports to China’s growth. That’s because a large part of China’s exports are composed of parts imported from other Asian countries. Lu Ting, China economist at Bank of America Merrill Lynch explains: “Domestic value added, which strips out the imported components from exports, accounts for about half of headline value of exports in China. This means that the true weight of exports in China’s GDP could decline from 17.5% in 2007 to 12.5% in 2011.” From Construction to Consumption? Fears of a global slowdown have reinforced the belief among many economists that China’s inflation has peaked, and that opens up room for a shift in policy to support growth. But expectations for a second stimulus are muted. “Further monetary tightening is unlikely, so is policy reversal,” says Citi’s Shen Minggao. If there is an easing of policy it is likely to come through increased public spending rather than a rolling back of monetary tightening. Mr. Shen says: “The current budget envisages a deficit of about 2% of GDP, and up to July the general government achieved a surplus of over 3% of GDP. This would allow a significant spending capacity for the rest of the year if a proactive fiscal policy stance is fully implemented.” In other words, in contrast to governments in the U.S. and Europe, China’s tight-fisted rulers have been taxing more than they spend. If Beijing turns that around and spends more than it taxes, the government can support growth in the closing months of the year. A second stimulus would likely work by supporting consumption rather than boosting investment. That choice to favor consumption has its drawbacks because investment spending has a bigger and more immediate payback in boosting growth. Deutsche’s Ma Jun does the math: “Every RMB1 that is spent by the government on investment, it boosts GDP by RMB1.4 almost instantly; but for every RMB1 transferred by the government to households, it only increases GDP by RMB0.4, and with a time lag.” But with diminishing returns to further investment, the rail crash raising concerns about the safety of major infrastructure projects, and the banks’ capacity to support another lending binge limited , China might have little choice but to turn from construction to consumption as the driver of growth. If consumers in the U.S. and Europe take another battering, it might be Chinese households’ time to shine. – Tom Orlik
The world’s monetary policy elite is gathering in Jackson Hole, Wyoming for their annual symposium. Federal Reserve Chairman Ben Bernanke is topping the bill and is expected to confirm a downbeat outlook for the U.S. and world economy. China is not normally well represented at the meeting and the expectation this year is that no one from China will appear on the roster of speakers.
But present or not, China won’t escape the implications of the gathering gloom. With prospects for growth in the U.S. and Europe increasingly shaky, investment banks have been rushing to downgrade their forecasts for growth in China.
Downgrading Growth
- China growth forecasts for 2011 and 2012. Click for larger image.
Ma Jun at Deutsche Bank sums up the reason for the move to downgrade: “We believe that in the near term, the single most important shock to the Chinese economy will be the likely slowdown (or even recession) of the EU and US economies.” Deutsche Bank has downgraded its China growth forecast for 2011 to 8.9% from 9.1%, and for 2012 to 8.3% from 8.6%.
“Much weaker growth prospects in developed economies” have also prompted Wang Tao at UBS to lower forecasts for growth in China to 9% from 9.3% in 2011, with a sharper drop to 8.3% from 9% in 2012.
The path from lower growth in the U.S. and Europe to lower growth in China lies through exports. Mr. Ma explains: “The key transmission mechanism is that for each 1 percentage point slowdown in EU/US growth, China’s export growth slows by about 6-7 percentage points… which in turn should reduce China’s GDP growth by 1 percentage points, including the ripple effect on investment slowdown in related sectors.”
With politicians in the U.S. lambasting China’s exporters as the source of all their woes, it might be expected that the impact would be greater. In fact, the share of exports in China’s GDP dipped from 35% in 2007 to 27% in 2010.
Even that 27% figure overstates the importance of exports to China’s growth. That’s because a large part of China’s exports are composed of parts imported from other Asian countries. Lu Ting, China economist at Bank of America Merrill Lynch explains:
“Domestic value added, which strips out the imported components from exports, accounts for about half of headline value of exports in China. This means that the true weight of exports in China’s GDP could decline from 17.5% in 2007 to 12.5% in 2011.”
From Construction to Consumption?
Fears of a global slowdown have reinforced the belief among many economists that China’s inflation has peaked, and that opens up room for a shift in policy to support growth. But expectations for a second stimulus are muted. “Further monetary tightening is unlikely, so is policy reversal,” says Citi’s Shen Minggao.
If there is an easing of policy it is likely to come through increased public spending rather than a rolling back of monetary tightening. Mr. Shen says: “The current budget envisages a deficit of about 2% of GDP, and up to July the general government achieved a surplus of over 3% of GDP. This would allow a significant spending capacity for the rest of the year if a proactive fiscal policy stance is fully implemented.”
In other words, in contrast to governments in the U.S. and Europe, China’s tight-fisted rulers have been taxing more than they spend. If Beijing turns that around and spends more than it taxes, the government can support growth in the closing months of the year.
A second stimulus would likely work by supporting consumption rather than boosting investment. That choice to favor consumption has its drawbacks because investment spending has a bigger and more immediate payback in boosting growth. Deutsche’s Ma Jun does the math: “Every RMB1 that is spent by the government on investment, it boosts GDP by RMB1.4 almost instantly; but for every RMB1 transferred by the government to households, it only increases GDP by RMB0.4, and with a time lag.”
But with diminishing returns to further investment, the rail crash raising concerns about the safety of major infrastructure projects, and the banks’ capacity to support another lending binge limited, China might have little choice but to turn from construction to consumption as the driver of growth.
If consumers in the U.S. and Europe take another battering, it might be Chinese households’ time to shine.
– Tom Orlik
Cumulative appreciation of the renminbi against the US dollar since the end of the dollar peg was more than 20% by late 2008, but the exchange rate has remained virtually pegged since the onset of the global financial crisis.
Deterioration in the environment – notably air pollution, soil erosion, and the steady fall of the water table, especially in the north – is another long-term problem.
China is the world’s fastest-growing major economy, with an average growth rate of 10% for the past 30 years.
Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.
The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP.
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.
The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.
The growth in both outbound investment from, and inbound investment to, China reflects the nation’s rising economic power and attractiveness as an investment destination.
In this period the average annual growth rate stood at more than 50 percent.
China reiterated the nation’s goals for the next decade – increasing market share of pure-electric and plug-in electric autos, building world-competitive auto makers and parts manufacturers in the energy-efficient auto sector as well as raising fuel-efficiency to world levels.
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.
China ranks first in world production of red meat (including beef, veal, mutton, lamb, and pork).
Oil fields discovered in the 1960s and after made China a net exporter, and by the early 1990s, China was the world’s fifth-ranked oil producer.
There are large deposits of uranium in the northwest, especially in Xinjiang; there are also mines in Jiangxi and Guangdong provs.
In the 1990s a program of share-holding and greater market orientation went into effect; however, state enterprises continue to dominate many key industries in China’s socialist market economy.
Since the 1980s China has undertaken a major highway construction program.
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China Avoids Jackson, But Not Gathering Economic Gloom
China
Expansion of Preferential Income Tax and Corporate Income Tax Policies in Shenzhen’s Qianhai Cooperation Zone
The Shenzhen Municipal Tax Bureau, Shenzhen Municipal Finance Bureau, and State Tax Administration have expanded tax incentives in the Qianhai Cooperation Zone. Hong Kong residents working there will be exempt from paying excess individual income tax and companies will have a reduced corporate tax rate.
The Shenzhen Municipal Tax Bureau, Shenzhen Municipal Finance Bureau, and State Tax Administration have issued two notices broadening tax incentives for individuals and companies in the Qianhai Cooperation Zone.
The Shenzhen Municipal Tax Bureau, Shenzhen Municipal Finance Bureau, and State Tax Administration have released two notices expanding a preferential individual income tax (IIT) and corporate income tax (CIT) policy for companies and individuals working in the Qianhai Shenzhen-Hong Kong Modern Service Industry Economic Cooperation Zone (“Qianhai Cooperation Zone”).
Under the expanded policies, Hong Kong residents working in the Qianhai Cooperation Zone, a development zone located in Shenzhen, will be exempted from paying the portion of IIT exceeding their salary tax burden in Hong Kong. In addition, a 15 percent CIT rate, reduced from the standard 25 percent rate, has been expanded to more areas of the zone.
Hong Kong applies a progressive salary tax rate ranging from 2 to 17 percent. Meanwhile, China’s IIT rate ranges from 3 to 45 percent. This means many Hong Kong residents would enjoy a lower IIT rate if they remained in Hong Kong, potentially disincentivizing the flow of talent to the Qianhai Cooperation Zone. This policy therefore ensures Hong Kong residents will not have to pay more IIT if they choose to work in the Qianhai Cooperation Zone rather than Hong Kong.
High-end and in-demand foreign talent in the Qianhai Cooperation Zone are already able to enjoy a preferential IIT policy that allows them to reclaim the portion of IIT paid in excess of 15 percent in the form of subsidies.
The income covered includes comprehensive income derived from Qianhai (including wages, salaries, labor remuneration, royalties, and franchise fees), operating income, and talent subsidy income certified by the local government.
The Hong Kong residents eligible for this policy can enjoy this preferential policy when settling their annual IIT in Qianhai.
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’s First Negative List for Cross-Border Data Transfer Released by Tianjin Free Trade Zone
The Tianjin Free Trade Zone in China has released a Negative List outlining data that requires a security review by China’s cybersecurity bureau before being transferred out of the country. This list clarifies compliance requirements for companies operating in certain industries within the free trade zone.
The Tianjin Free Trade Zone has released China’s first data Negative List outlining the types of data that must undergo a security review by China’s cybersecurity bureau to be transferred out of China. While the Negative List maintains previously set thresholds for the volume of data that companies can handle before triggering data export compliance procedures, it also clarifies compliance requirements for companies in the free trade zone operating in certain industries.
The Tianjin Pilot Free Trade Zone (Tianjin FTZ) has released a new Negative List of data that will be subject to certain compliance requirements to be exported.
The China (Tianjin) Pilot Free Trade Zone Data Export Management List (Negative List) (2024 Edition), released by the Tianjin FTZ Management Committee and the Tianjin Municipal Commerce Bureau on May 8, 2024, is the first CBDT Negative List released in China. Ostensibly, data that is not included in the Negative List can be freely transferred out of China, which would significantly ease compliance requirements for companies based in the Tianjin FTZ.
Under China’s Personal Information Protection Law (PIPL) and subsequent regulations, companies that wish to export a certain amount or types of personal information and data outside of China are required to undergo one of three compliance requirements. These are 1) a security assessment carried out by the Cybersecurity Administration of China (CAC), 2) signing a Standard Contract with the overseas recipient of the data, or 3) receiving data export security certification by a third-party agency.
Due to the relatively low threshold for the volume and type of data that can trigger these compliance measures, these regulations significantly increase compliance burdens and hinder normal operations for companies, in particular foreign companies and multinational corporations (MNCs).
In an effort to improve the business environment for foreign companies in China, the CAC has released the Regulations to Promote and Standardize Cross-Border Data Flows (the CBDT Regulations). Among many other measures to facilitate data export, such as the increased data volume thresholds for triggering compliance procedures, these new regulations allow China’s FTZs to implement their own data governance rules, including formulating their own data Negative Lists.
The Tianjin FTZ is the first FTZ in China to release such a Negative List, and it is likely to be followed by more in the near future.
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
Lingang New Area in Shanghai Introduces Whitelists for Data Export to Enhance Cross-Border Data Flows
The Lingang New Area in Shanghai has introduced trial general data lists to simplify data export procedures for companies in automotive, biopharmaceuticals, and mutual funds sectors. This aims to reduce regulatory burdens and facilitate cross-border data flows, following efforts to improve business environment for foreign companies.
The Lingang New Area in Shanghai has introduced trial general data lists aimed at simplifying data export procedures for companies in the automotive, biopharmaceuticals, and mutual fund sectors. These lists outline specific scenarios where businesses can export data out of China with reduced regulatory burdens, bypassing more stringent compliance requirements.
The Lingang New Area of the Shanghai Pilot Free Trade Zone (FTZ) has released the first batch of trial lists of general data for three sectors, facilitating cross-border data flows for companies operating in the area. This announcement closely follows the release of the Tianjin FTZ’s Negative List, which similarly seeks to facilitate cross-border data flows for companies operating in the FTZ by specifying the types of data that are restricted from being exported without certain approval procedures.
The first batch of general data lists has been provided for the fields of intelligent connected vehicles, biopharmaceuticals, and mutual funds, three sectors with a significant presence in the Lingang New Area. The general data lists are scenario-based, meaning they outline various situations in which data export is required and freely permitted. These include scenarios, such as multinational production and manufacturing of intelligent connected vehicles, medical clinical trials and R&D, and information sharing for fund market research.
The general data lists will be implemented for a trial period of one year from their date of implementation, May 16, 2024.
In January 2024, the Lingang New Area announced a new system for data management and export in the area, which included the release of two data catalogs, one for “important” data and one for “general” data. This new system will help facilitate cross-border data transfer (CBDT) for key sectors in the area by delineating the types of data that are restricted or subject to additional compliance measures to be exported (through the important data lists) and data that can be more easily exported (through the general data lists).
In March, the area released the Measures for the Classification and Graded Management of Data Cross-border Flow in the China (Shanghai) Pilot Free Trade Zone Lingang Special Area (Trial) (the “Lingang CBDT Management Measures”), which outlined the rules and requirements for this new system, including how companies can use the general data lists.
These developments follow many months of efforts by the central Chinese government as well as local authorities to improve the business environment for foreign companies in particular, a core part of which has been resolving headaches surrounding data export.
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.
- Expansion of Preferential Income Tax and Corporate Income Tax Policies in Shenzhen’s Qianhai Cooperation Zone
- China’s First Negative List for Cross-Border Data Transfer Released by Tianjin Free Trade Zone
- Lingang New Area in Shanghai Introduces Whitelists for Data Export to Enhance Cross-Border Data Flows
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- Foreign Tourist Groups on Cruise Ships Fully Permitted Visa-Free Entry in China
- China’s New Tariff Law: Streamlining and Standardizing Current Tariff Regulations
