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China

US–China trade war : will there be a winner ?

The U.S. and China are hours away from a new round of tariffs on each other’s goods, with no improvement in relations between the two rivals in sight. Will there be a winner, or only two big losers ?

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The U.S. and China are hours away from a new round of tariffs on each other’s goods, with no improvement in relations between the two rivals in sight.

 

In a significant escalation, $200 billion of Chinese products will be subject to increased tariffs from 12:00 p.m. Beijing time on Monday, on top of the $50 billion in goods already charged higher duties earlier in the year. The combined $250 billion in products facing levies is almost half the value of imports from China last year.

Meanwhile, $60 billion of goods from the U.S. will become subject to Chinese higher tariffs around the same time, adding to the $50 billion already levied. That’ll mean about 70 percent of the value of goods China bought from America in 2017 face tariffs.

There are three major explanations for why the United States began its recent trade war with China

United States wants to reduce its trade deficit

The first is that the United States wants to reduce its trade deficits. US President Donald Trump tweeted on 4 April 2018 that ‘[the United States has] a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!’. Many US commentators think that the gargantuan imbalance translates into an incremental increase in US indebtedness to China, which they consider to be a huge vulnerability for the United States.

The United States wants to slow China’s progress toward being a high-tech superpower

The second is that the United States wants to slow China’s progress toward being a high-tech superpower. The main sectors in China getting hit are machinery, electronics and IT technology. This is tantamount to the United States’ directly targeting Made in China 2025.

The final explanation is that ‘Trump favours highly transactional exchanges’ and wants an increased stock of bargaining chips. Trump may well have begun a trade war with China now so that he can relinquish it later in exchange for cooperation over perplexing political and security issues.

Whatever the cause, China has been bashed by the trade war. Over the last five months, the Shanghai Composite Index — a barometer of the Chinese stock market — has plummeted by approximately 18 per cent and the Chinese renminbi has depreciated nearly 8 per cent. Because China is still export dependent, the trade war will make Chinese export firms lose approximately US$22 billion and will cause unemployment, especially in China’s east coast.

China faces daunting domestic challenges

Even without the trade war, China faces daunting domestic challenges.

After years of work, China’s economic structural change is slowly progressing. China’s private consumption as percentage of GDP has been increasing since 2010, but it has not yet breached 40 per cent (compared to a US average of 68 per cent). China’s gross savings rate is more than 46 per cent of GNP against the United States’ 17.3 per cent.

Continued high national savings for a long time fully financed Chinese investment and sustained it at a very high level. Even today, China’s investment accounts for 44.4 per cent of GDP. This prolonged investment on a massive scale has created significant overcapacity in a range of sectors and has engendered much debt — part of which has become non-performing loans.

The trade war will only drive the renminbi to further depreciate

Amid China’s internal issues, the trade war will only drive the renminbi to further depreciate. In recent months, Beijing has taken a series of monetary and fiscal initiatives to boost lending and restructure debt.

These initiatives may ameliorate the situation in the short term, but solving the problems completely and successfully will take much longer than expected. If the trade war lingers on until the end of 2018 or even till 2019, market sell-off pressure on the renminbi will likely increase. In addition, US economic indicators look sublime and the almost-inevitable interest rate raise will facilitate further renminbi depreciation.

The worst case scenario would be a persistent trade war coupled with US interest rate increases. This would elicit very negative sentiment and might cause large-scale capital flight from China.

But can the United States achieve the objectives it seeks from the trade war?

The United States cannot drive down or stop trade deficits for the foreseeable future. Anyone who understands balance of payments accounting knows that the sum of the current account and the capital account must equal zero. The United States has very flexible and liquid capital markets with highly credible governance, which lures countries with trade surpluses to export a large part of their excess savings to the United States.

In 2017, US net financial inflows stood at more than US$375 billion, and the capital account surplus exceeded US$400 billion. Further, in today’s trade regime, the capital account drives the savings account. Unless the United States can flip around its capital account surplus, overall trade deficits will remain huge.

Similarly, the United States will struggle to blight China’s Made in China 2025 initiative.

Technology innovation and investment are being promoted by the Chinese government.

There are now 1775 Chinese venture capital firms. China is determined to narrow the income gap between itself and the advanced countries. So a trade war aiming to refrain China from technological enhancement will ‘only strengthen Chinese leaders’ resolve to boost innovation and achieve technological supremacy, as they realise that they can’t rely on others’, as Joseph Stiglitz notes.

Finally, if Trump plans on using a trade war as a bargaining chip, he should know that China will not likely compromise, at least in the short term. Popular anger and national sentiment may well surge about the trade war, which would leave the Chinese government with little choice but to stand firm. China could use ‘strong sales of US brands’ as its own bargaining chip, but if the trade war lasts for more months and China’s economy continues to worsen, the US bargaining chips might increase in potency. Yet still, China could hardly give in to any conditions that violate its national interests.

The trade war will accomplish neither country’s objectives.

China and the United States need to install an effective communications channel, dispatch high-echelon officials who deeply understand each other, come to negotiations, and as Harvard economist Dani Rodrik suggests, ‘do not impose on other countries constraints that you would not accept if faced with their circumstances’.

Yuhan Zhang is an economist and independent researcher.

Who will be the winner of the US–China trade war? | East Asia Forum

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Canberra ties the knot with Washington

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Canberra ties the knot with Washington

Abstract

Australia has shifted its strategy towards favoring the United States over China due to increasing fear of Chinese power and the competitive Indo-Pacific environment.

The ‘riding two horses’ strategy adopted by Canberra over the past 25 years has shifted in favor of the US alliance to counter China’s growing power. Previous prime ministers sought to balance relations between China and the US, with Kevin Rudd aiming for ‘true friendship’ with China while also promising military intervention if needed. Tony Abbott’s approach was driven by ‘fear and greed’, and John Howard acknowledged the benefits of a relationship with both countries.

However, Prime Minister Anthony Albanese has expressed a desire to strengthen the US alliance and cooperate with China while also engaging in Australia’s national interest. This shift is evident in actions such as sending a warship through the Taiwan Strait and introducing legislation to facilitate the AUKUS security partnership.

The Indo-Pacific environment has become more competitive, leading Australia to prioritize fear over greed in its alignment. As China’s GDP continues to rise and may overtake the US by 2030, Canberra’s strategy is likely to continue favoring alignment with Washington due to the lack of a viable alternative for addressing its fear of China’s power.

Read the complete article on East Asia Forum

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2024 China IIT Reconciliation: Appointment Through IIT App Opens on February 21st

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Annual IIT reconciliation for 2023 must be done from March 1 to June 30, 2024. Final tax settlement appointments must be made after February 21, 2024. The process involves checking and reporting on IIT paid and deducted in 2023 to calculate refundable or supplementary tax.


Annual IIT reconciliation for the year 2023 is required to be made during the period from March 1 to June 30, 2024. For those who need to make the final tax settlement between March 1 to March 20, they need to make an appointment after February 21, 2024.

On February 1, 2024, the State Taxation Administration (STA) issued the Announcement on Matters Relating to the Final Settlement of Individual Income Tax on Consolidated Income for the Year 2023 (the Announcement), clarifying matters related to the annual individual income tax (IIT) reconciliation for the year 2023.

Annual IIT reconciliation, or annual IIT settlement, is a process applied to individual taxpayers on their comprehensive income (an individual’s combined income of wages and salaries, remuneration from labor services, author’s remuneration, and royalties), to make sure their IIT paid in the previous tax year is accurate.

During the process, individual taxpayers will need to recheck their IIT paid and deducted in the tax year, calculate the refundable or supplementary tax payable, report to the tax authorities, and make the tax settlement.

In this article, we introduce key issues related to the annual IIT reconciliation in 2024 and the key changes as compared to previous years.

After the end of the year 2023, a resident individual is required to consolidate his/her four types of comprehensive income, namely wages and salaries, remuneration for personal services, author’s remuneration, and royalties obtained from January 1 to December 31, 2023, to compute the final tax payable amount. The taxpayer needs to deduct the prepaid tax amount in 2023 to obtain the tax refundable or the tax to be made up amount. Further, the taxpayer is required to declare to tax authorities for a tax refund or tax to be made up.

Tax Refundable or Tax to Be Made Up = [(Annual Comprehensive Income – RMB 60,000- Special Deductions – Special Additional Deductions – Other Deductions Determined Pursuant to the Law – Qualified Public Welfare And Charitable Donations) × Applicable Tax Rate – Quick Deduction] – Prepaid Tax Amount

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.

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The Year of the Dragon brings record-breaking travel and consumption during the 2024 Chinese Spring Festival

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The Chinese New Year holiday saw a remarkable recovery in the tourist industry, with travel numbers and revenues exceeding 2023 and pre-pandemic levels. The Ministry of Culture and Tourism reported unprecedented growth, showcasing the industry’s resilience despite the COVID-19 pandemic.


The tourist industry registered significant growth during this year’s Chinese New Year (CNY) holidays, the first to be completely unaffected by the COVID-19 pandemic.

According to the latest figure released by the Ministry of Culture and Tourism, both travel numbers and tourism-related revenues reached unprecedented levels, surpassing figures registered during the 2023 Chinese New Year while also surpassing pre-COVID-19 levels.

Rebound in domestic and international travels

According to the data released by the Ministry of Culture and Tourism on Sunday, domestic tourism registered a remarkable performance during this year’s eight-day celebration.

The data reveals a significant surge in domestic trips, totaling 474 million trips made across the country from February 10 to February 18, marking a notable increase of 34.4 percent compared to the same period in 2023. This figure attracted special attention as it was a 19 percent rise compared with that in 2019.

The surge in travel within the country was facilitated by traditional transportation models, such as railways, civil aircraft, and waterways. Additionally, this year there has been also an increase in travelers embarking on independent road trips, partially due to the current rise in popularity of electric cars in China. This trend was further encouraged by the government’s efforts to stimulate the purchase of these vehicles as a way to boost domestic consumption. To cater to this trend, provinces ensured the temporary deployment of additional recharging stations in service areas, ensuring a seamless travel experience for travelers.

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.

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